Abstract: How do different development policies come to exist across countries and over time? To address this question, this article develops a politico-economy theory of dynamic Ramsey policies. I adapt the workhorse macro model with heterogeneous agents to include: i) repeated elections, ii) endogenous credit constraints, and iii) occupational choice. Policies and inequality are jointly determined over time as a result of the political process. I characterize the transition dynamics of the equilibrium policy as a function of countries’ initial wealth distribution. The different policy dynamics provide a political rationale for the differences in development policies pursued by developing and developed countries.