The Dynamics of Political Compromise, Political Institutions and Economic Policies

I explore how political cooperation relates to institutional as well as economic policy developments, and how these in turn affect the dynamics of political cooperation. To do this I build a stylized model where parties with... [ view full abstract ]

I explore how political cooperation relates to institutional as well as economic policy developments, and how these in turn affect the dynamics of political cooperation. To do this I build a stylized model where parties with different preferences set policies and invest in political institutions. In the model institutions are explicitly defined as endogenous constraints on the possibility of reneging on political promises. After an improvement in the conditions for cooperation the model generates a dynamic path of institutional development that allows for increasing cooperation and policy convergence. During the transition the gains from acquiring power decrease and policies are too conservative, meaning that the tax rate is lower than the one preferred by the median voter. Although the bias decreases in the transition it may persist in the long-run.