Aggregate uncertainty, political instability and redistribution

This paper associates political instability to real shocks a®ecting the income of the median voter, in a two-period model where two political parties set redistribution in order to defend the interests of well-de¯ned constituencies. Implemented policies a®ect future voting outcomes and an intertemporal trade-o ® arises for the parties since their optimal one-period strategy does not maximize the probability of being reelected. The higher the volatility of the real shock, the more likely that parties deviate from the optimal one-period strategy by choosing a conservative strategy, which increases their chances of reelection and the expected lifetime utility of their constituencies. (JEL D72, E62) I would like to thank Jose'-Victor Rios-Rull for his help and encouragement. I have also bene¯ted from comments and suggestions by Dirk Bergemann, Carlotta Berti Ceroni, Michel