This paper builds a model of heterogenous agents, incomplete markets and idiosyncratic shocks extended with a political mechanism that allows for realistic party competition. Candidates propose policies representing the economic interests of different groups of voters and offer dissimilar policies in equilibrium. Higher inequality leads to more disperse policy preferences, to which parties respond endogenously distancing themselves from median voter preferences. The polarization of party proposals leads to greater uncertainty before elections, as well as greater policy switches after them. The model quantifies the macroeconomic effects generated by inequality through a political channel that differ from the one behind the widespread median-voter hypothesis. Results are in line with previous empirical evidence linking inequality, polarization and macroeconomic performance, and are robust to the inclusion of abstention and ideology.