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Political Economy in Macroeconomics

Опубликовано на портале: 02-11-2007
New Jersey: Princeton University Press, 2000
This major text will have an enormous impact on students and professionals in political science as well as economics, redefining how decision makers on several continents think about the full range of macroeconomic issues and informing the approaches of the next generation of economists.

Originally, economics was called political economy, and those studying it readily accepted that economic decisions are made in a political world. But economics eventually separated itself from politics to pursue rigorous methods of analyzing individual behavior and markets. Recently, an increasing number of economists have turned their attention to the old question of how politics shape economic outcomes. To date, however, this growing literature has lacked a cogent organization and a unified approach. Here, in the first full-length examination of how political forces affect economic policy decisions, Allan Drazen provides a systematic treatment, organizing the increasingly influential "new political economy" as a more established field at the highly productive intersection of economics and political science.
Although he provides an extraordinarily helpful guide to the recent explosion of papers on political economy in macroeconomics, Drazen moves far beyond survey, giving definition and structure to the field. He proposes that conflict or heterogeneity of interests should be the field's essential organizing principle, because political questions arise only when people disagree over which economic policies should be enacted or how economic costs and benefits should be distributed. Further, he illustrates how heterogeneity of interests is crucial in every part of political economy. Drazen's approach allows innovative treatment--using rigorous economic models--of public goods and finance, economic growth, the open economy, economic transition, political business cycles, and all of the traditional topics of macroeconomics.

Introductory Note

Part I: Basic issues and tools of analysis

Chapter 1. What is a Political Economy?
1.1 Introduction
1.2 Politics and Economics
1.3 Types of Heterogeneity
1.4 An Illustration of Approaches
1.5 Plan of the Book

Chapter 2. Economic Models for Political Analysis
2.1 Introduction
2.2 The Principal-Agent Problem
2.3 Discrete Time Dynamic Models*b2Dynamic Programming
2.4 The Overlapping Generations Model
2.5 Effects of Uncertain Future Policies
2.6 Conclusions

Chapter 3. Decisionmaking Mechanisms
3.1 Introduction
3.2 How Much Political Detail?
3.3 Choosing Decisionmaking Mechanisms
3.4 Direct Democracy
3.5 Representative Democracy
3.6 Multiparty Systems
3.7 Interest Groups and Lobbying
3.8 Transaction Cost Politics
3.9 Conclusions

Part II: Commitment, credibility, and reputation

Chapter 4. The Time-Consistency Problem
4.1 Introduction
4.2 Capital Taxation
4.3 Time Inconsistency as a Conflict of Interests
4.4 The Barro-Gordon Model
4.5 Seigniorage Revenue and the Optimum Quantity of Money
4.6 Commitment versus Flexibility
4.7 Conclusions

Chapter 5. Laws, Institutions, and Delegated Authority
5.1 Introduction
5.2 Laws, Constitutions, and Social Contracts
5.3 Delegation of Authority
5.4 Central Bank Independence
5.5 Fiscal Structures for Time Consistency
5.6 Conclusions

Chapter 6. Credibility and Reputation
6.1 Introduction
6.2 Reputation
6.3 "Reputation" under Complete Information
6.4 Reputation under Incomplete Information--Mimicking
6.5 Does Reputation "Solve" the Time-Consistency Problem?--Three Caveats
6.6 Signaling
6.7 Reputation for Not Reneging on Commitments
6.8 Credibility and External Circumstances
6.9 Ambiguity, Secrecy, and Imprecise Control
6.10 Conclusions

Part III: Heterogeneity and conflicting interests

Chapter 7. Elections and Changes of Policymakers
7.1 Introduction
7.2 Elections and Policymaker Performance
7.3 The Opportunistic Political Business Cycle
7.4 Partisan Political Cycles
7.5 Competence and Prospective Voting
7.6 Campaign Promises
7.7 Interactions of the Executive and the Legislature
7.8 Multiparty Systems and Endogenous Election Dates
7.9 Tying the Hands of One's Replacement
7.10 Conclusions

Chapter 8. Redistribution
8.1 Introduction
8.2 Redistribution of Income
8.3 Differential Transfers
8.4 Nonmonetary Redistribution
8.5 Rent Seeking and Predation
8.6 Intergenerational Redistribution
8.7 Redistribution and Mobility
8.8 Conclusions

Chapter 9. Public Goods
9.1 Introduction
9.2 Public Goods--The Neoclassical Approach
9.3 Provision of Public Goods in Practice
9.4 Voluntary Provision of Public Goods--Free Riders and Collective Action
9.5 Voluntary Provision of Public Goods--Clubs
9.6 The Static Public Goods Game
9.7 The War of Attrition in Public Goods Provision
9.8 Conclusions

Chapter 10. Inaction, Delay, and Crisis
10.1 Introduction
10.2 Economic Arguments
10.3 Vested Interests
10.4 Nonadoption Due to Uncertainty about Individual Benefits
10.5 "Communication" Failures
10.6 Conflict over the Burden of Reform
10.7 Common Property Models
10.8 Economic Crises
10.9 Conclusions

Part IV: Application to policy issues

Chapter 11. Factor Accumulation and Growth
11.1 Introduction
11.2 Basic Models of Fiscal Policy and Capital Accumulation
11.3 Imperfect Capital Markets, Externalities, and Endogenous Income Distribution
11.4 Political Institutions and Regimes
11.5 Socio-Political Instability
11.6 Empirical Determinants of Growth
11.7 Conclusions

Chapter 12. The International Economy
12.1 Introduction

Part I. Exchange-Rate Arrangements
12.2 Fixed versus Flexible Exchange Rates
12.3 Currency Crises and Contagious Speculative Attacks
12.4 Monetary Unions

Part II. Macroeconomic Interdependence
12.5 International Policy Cooperation
12.6 Political Responses to External Shocks

Part III. International Capital and Aid Flows
12.7 Capital Controls
12.8 Sovereign Borrowing
12.9 Foreign Aid
12.10 Conclusions

Chapter 13. Economic Reform and Transition
13.1 Introduction
13.2 Defining the Issues
13.3 Economic and Political Constraints
13.4 The Implications of Magnitude--A Formal Analysis
13.5 Heterogeneity and Political Constraints
13.6 Labor Reallocation
13.7 Privatization
13.8 Price Liberalization
13.9 Conclusions

Chapter 14. The Size of Government and the Number of Nations
14.1 Introduction
14.2 The Scope of Government
14.3 The Size of Government--Government Spending
14.4 Government Debt and Deficits
14.5 Budgetary Rules and Institutions
14.6 The Number of Nations
14.7 Conclusions

Author index
Subject index