Towards an economic theory of party ideology

In this paper a signalling model is used to examine the role of party ideology in the conduct of economic policy. A distinguishing feature of the model is that policy makers have more knowledge about the efficacy of economy policy than voters. This asymmetry of information generates an incentive for the policy makers to adopt an ideological view of how the economy works. It is shown that party ideologies are most likely to arise in rigid economic and polarized political systems.