Political Economy in Macroeconomics by Allan DrazenPolitical Economy in Macroeconomics by Allan Drazen

Political Economy in Macroeconomics

byAllan Drazen

Paperback | January 15, 2002

Pricing and Purchase Info

$104.25 online 
$110.50 list price save 5%
Earn 521 plum® points

Prices and offers may vary in store

Quantity:

In stock online

Ships free on orders over $25

Not available in stores

about

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.


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.

Allan Drazenis Professor at the Eitan Berglas School of Economics, Tel Aviv University, and Professor of Economics at the University of Maryland.
Loading
Title:Political Economy in MacroeconomicsFormat:PaperbackDimensions:792 pagesPublished:January 15, 2002Publisher:Princeton University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0691092575

ISBN - 13:9780691092577

Look for similar items by category:

Reviews

Table of Contents

Preface xi

Introductory Note xiii



PART I: BASIC ISSUES AND TOOLS OF ANALYSIS 1



CHAPTER ONE What is a Political Economy? 3

1.1 Introduction 3

1.2 Politics and Economics 5

1.3 Types of Heterogeneity 9

1.4 An Illustration of Approaches 12

1.5 Plan of the Book 18



CHAPTER TWO Economic Models for Political Analysis 20

2.1 Introduction 20

2.2 The Principal-Agent Problem 22

2.3 Discrete Time Dynamic Models*b2Dynamic Programming 31

2.4 The Overlapping Generations Model 35

2.5 Effects of Uncertain Future Policies 38

2.6 Conclusions 58



CHAPTER THREE Decisionmaking Mechanisms 60

3.1 Introduction 60

3.2 How Much Political Detail? 61

3.3 Choosing Decisionmaking Mechanisms 64

3.4 Direct Democracy 70

3.5 Representative Democracy 77

3.6 Multiparty Systems 85

3.7 Interest Groups and Lobbying 90

3.8 Transaction Cost Politics 96

3.9 Conclusions 98



PART II: COMMITMENT, CREDIBILITY, AND REPUTATION 99



CHAPTER FOUR The Time-Consistency Problem 101

4.1 Introduction 101

4.2 Capital Taxation 104

4.3 Time Inconsistency as a Conflict of Interests 110

4.4 The Barro-Gordon Model 113

4.5 Seigniorage Revenue and the Optimum Quantity of Money 121

4.6 Commitment versus Flexibility 126

4.7 Conclusions 130



CHAPTER FIVE Laws, Institutions, and Delegated Authority 131

5.1 Introduction 131

5.2 Laws, Constitutions, and Social Contracts 132

5.3 Delegation of Authority 140

5.4 Central Bank Independence 142

5.5 Fiscal Structures for Time Consistency 157

5.6 Conclusions 164



CHAPTER SIX Credibility and Reputation 166

6.1 Introduction 166

6.2 Reputation 168

6.3 "Reputation" under Complete Information 169

6.4 Reputation under Incomplete Information--Mimicking 175

6.5 Does Reputation "Solve" the Time-Consistency Problem?--Three Caveats 183

6.6 Signaling 187

6.7 Reputation for Not Reneging on Commitments 195

6.8 Credibility and External Circumstances 201

6.9 Ambiguity, Secrecy, and Imprecise Control 208

6.10 Conclusions 214



PART III: HETEROGENEITY AND CONFLICTING INTERESTS 217



CHAPTER SEVEN Elections and Changes of Policymakers 219

7.1 Introduction 219

7.2 Elections and Policymaker Performance 223

7.3 The Opportunistic Political Business Cycle 228

7.4 Partisan Political Cycles 246

7.5 Competence and Prospective Voting 268

7.6 Campaign Promises 278

7.7 Interactions of the Executive and the Legislature 283

7.8 Multiparty Systems and Endogenous Election Dates 293

7.9 Tying the Hands of One's Replacement 300

7.10 Conclusions 308



CHAPTER EIGHT Redistribution 309

8.1 Introduction 309

8.2 Redistribution of Income 311

8.3 Differential Transfers 318

8.4 Nonmonetary Redistribution 324

8.5 Rent Seeking and Predation 334

8.6 Intergenerational Redistribution 345

8.7 Redistribution and Mobility 354

8.8 Conclusions 370



CHAPTER NINE Public Goods 372

9.1 Introduction 372

9.2 Public Goods--The Neoclassical Approach 375

9.3 Provision of Public Goods in Practice 379

9.4 Voluntary Provision of Public Goods--Free Riders and Collective Action 382

9.5 Voluntary Provision of Public Goods--Clubs 391

9.6 The Static Public Goods Game 395

9.7 The War of Attrition in Public Goods Provision 397

9.8 Conclusions 401



CHAPTER TEN Inaction, Delay, and Crisis 403

10.1 Introduction 403

10.2 Economic Arguments 407

10.3 Vested Interests 411

10.4 Nonadoption Due to Uncertainty about Individual Benefits 414

10.5 "Communication" Failures 423

10.6 Conflict over the Burden of Reform 432

10.7 Common Property Models 439

10.8 Economic Crises 444

10.9 Conclusions 454



PART IV: APPLICATION TO POLICY ISSUES 455



CHAPTER ELEVEN Factor Accumulation and Growth 457

11.1 Introduction 457

11.2 Basic Models of Fiscal Policy and Capital Accumulation 461

11.3 Imperfect Capital Markets, Externalities, and Endogenous Income Distribution 474

11.4 Political Institutions and Regimes 488

11.5 Socio-Political Instability 500

11.6 Empirical Determinants of Growth 513

11.7 Conclusions 524



CHAPTER TWELVE The International Economy 526

12.1 Introduction 526



PART I Exchange-Rate Arrangements 529

12.2 Fixed versus Flexible Exchange Rates 529

12.3 Currency Crises and Contagious Speculative Attacks 536

12.4 Monetary Unions 544



PART II Macroeconomic Interdependence 559

12.5 International Policy Cooperation 559

12.6 Political Responses to External Shocks 579



PART III International Capital and Aid Flows 580

12.7 Capital Controls 580

12.8 Sovereign Borrowing 587

12.9 Foreign Aid 601

12.10 Conclusions 613



CHAPTER THIRTEEN Economic Reform and Transition 615

13.1 Introduction 615

13.2 Defining the Issues 617

13.3 Economic and Political Constraints 621

13.4 The Implications of Magnitude--A Formal Analysis 626

13.5 Heterogeneity and Political Constraints 632

13.6 Labor Reallocation 643

13.7 Privatization 653

13.8 Price Liberalization 663

13.9 Conclusions 674



CHAPTER FOURTEEN The Size of Government and the Number of Nations 675
14.1 Introduction 675

14.2 The Scope of Government 677

14.3 The Size of Government--Government Spending 679

14.4 Government Debt and Deficits 690

14.5 Budgetary Rules and Institutions 697

14.6 The Number of Nations 707

14.7 Conclusions 731



Bibliography 735

AUTHOR INDEX 765

SUBJECT INDEX 771

Editorial Reviews

"This book will be a lasting contribution: it will be widely used in graduate courses on the topic, and by whoever wants to learn about these recent developments of economic theory. Its main strengths are clarity of exposition, completeness of treatment, balanced critical evaluation ... and, perhaps most valuable of all, a very successful attempt to integrate the many disparate contributions [to the new political economy] with earlier literature in public choice and public finance, as well with each other."-Guido Tabellini, Universita Bocconi and Centre for Economic Policy Research in London