Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296128 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11039
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We develop a model to analyze policymakers' incentives to install policy rules, comparing the case of no rule with a binding and a contingent policy rule that allows policymakers to suspend the rule in response to a sufficiently large shock. First, abstracting from political polarization, we show that the choice of the policy rule depends on policymakers' policy targets. Depending on the policy target, there is an unambiguous ranking going from a no-rule regime to a contingent rule to a binding rule. Next, allowing for political polarization, the incentive to install the different types of rules changes with political polarization between different policymakers and their probability of being elected into office. Increasing political polarization when there is a sufficiently high election probability for policymakers with a high policy target increases the preference for more binding policy rules. It also leads to stricter rules in a contingent rule regime.
Subjects: 
contingent policy rules
political polarization
time inconsistency
electoral uncertainty
JEL: 
D78
E60
Document Type: 
Working Paper
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