Optimal taxation and strategic budget deficit under political regime switching

I develop a dynamic political economy theory of optimal taxation and budget distortions in a model with partisan politics. Under asymmetric informatio n, politics affects the distribution of utilities in the economy. Political regime switching introduces fluctuations of this distribution. These fluct uations justify strategic budget distortions by governments currently holdi ng office and willing to favour their redistributive concerns against futur e majority. Under quite general assumptions on preferences, these distortio ns take the form of budget deficits (resp. surpluses) with leftist (rightis t) governments. Endogenizing the probabilities of getting elected may rever se this result.