We propose a notion of dynamic politico-economic equilibrium which builds on two key assumptions: policies are determined sequentially, and agents are fully rational both in their roles as consumers and as voters. Our object of interest is a simple model of endogenous growth and infinitely-lived agents where taxes on income are endogenous, and we show how growth critically depends on the initial distribution of asset holdings. In studying the model economy we relate our equilibrium definition and results to two strands of existing literature. The first is the literature on time-consistency, and we show that our equilibria are time-consistent. Hence, our equilibrium concept is the natural one for all those economies where the current political decisions are not constrained by past decisions. Second, we review the existing literature on political economy and growth and use the growth model we study to compare a number of existing approaches to modeling policy determination. We argue that the choice of equilibrium concept may have large
quantitative implications. In particular, we show that equilibrium concepts which either assume that voting only occurs at the beginning of time, or that voters are myopic when they forecast future votes, lead to lower equilibrium tax rates and higher growth than under our approach to policy determination.