Which Rules Rather than Discretion in a Democracy? An Axiomatic Approach

This paper sets a framework for analysing how memoryless voters may come to elect and re-elect a committed policy-maker. Policy-makers, we assume, are trusted to implement the policy that they announce ex ante (and do implement it, if elected and re-elected). Voters, however, are never bound by their previous votes. With no restrictions imposed on the ex ante announcements of the policy-makers, no commitment is, in general, feasible. (As we argue in the text, the Barro-Gordon framework is an exception.) What we show in the paper is how a (natural) set of axiomatic restrictions imposed on the set of policy announcements may yield an unambiguous stationary state towards which all policy announcements will converge.Credibility; Macroeconomic Policy; Time Inconsistency