Political Economy in Macroeconomics / Edition 1

Political Economy in Macroeconomics / Edition 1

by Allan Drazen

"Formal models of political economy are today part of the tool kit of every well-trained macroeconomist. There exists no better guide to these models than this colossal book. Allan Drazen is not only a leading practitioner of the art; he is a first-rate expositor. A survey, textbook, and critique all in one, this book informs, teaches, and stimulates. You will not

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"Formal models of political economy are today part of the tool kit of every well-trained macroeconomist. There exists no better guide to these models than this colossal book. Allan Drazen is not only a leading practitioner of the art; he is a first-rate expositor. A survey, textbook, and critique all in one, this book informs, teaches, and stimulates. You will not need another book on political economy for some time to come."—Dani Rodrik, Harvard University

"This book is magnificent, and is sure to become a standard reference in the rapidly growing field of politics and macroeconomics."—Kenneth Rogoff, Harvard University

"Drazen's book gives an excellent account of the political dimension of macroeconomic policy. With its careful attention to methodological issues, thorough and balanced presentation of the literature, and clear exposition and perceptive evaluation of models, this book will be valuable both as a reference volume for researchers and a textbook for graduate students."—Avinash Dixit, Princeton University

"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

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Product Details

Princeton University Press
Publication date:
Edition description:
New Edition
Sales rank:
Product dimensions:
6.10(w) x 9.10(h) x 1.70(d)

Table of Contents

Introductory Notexiii
Part IBasic Issues and Tools of Analysis1
Chapter 1What is a Political Economy?3
1.2.Politics and Economics5
1.3.Types of Heterogeneity9
1.4.An Illustration of Approaches12
1.5.Plan of the Book18
Chapter 2Economic Models for Political Analysis20
2.2.The Principal-Agent Problem22
2.3.Discrete Time Dynamic Models--Dynamic Programming31
2.4.The Overlapping Generations Model35
2.5.Effects of Uncertain Future Policies38
Chapter 3Decisionmaking Mechanisms60
3.2.How Much Political Detail?61
3.3.Choosing Decisionmaking Mechanisms64
3.4.Direct Democracy70
3.5.Representative Democracy77
3.6.Multiparty Systems85
3.7.Interest Groups and Lobbying90
3.8.Transaction Cost Politics96
Part IICommitment, Credibility, and Reputation99
Chapter 4The Time-Consistency Problem101
4.2.Capital Taxation104
4.3.Time Inconsistency as a Conflict of Interests110
4.4.The Barro-Gordon Model113
4.5.Seigniorage Revenue and the Optimum Quantity of Money121
4.6.Commitment versus Flexibility126
Chapter 5Laws, Institutions, and Delegated Authority131
5.2.Laws, Constitutions, and Social Contracts132
5.3.Delegation of Authority140
5.4.Central Bank Independence142
5.5.Fiscal Structures for Time Consistency157
Chapter 6Credibility and Reputation166
6.3."Reputation" under Complete Information169
6.4.Reputation under Incomplete Information--Mimicking175
6.5.Does Reputation "Solve" the Time-Consistency Problem?--Three Caveats183
6.7.Reputation for Not Reneging on Commitments195
6.8.Credibility and External Circumstances201
6.9.Ambiguity, Secrecy, and Imprecise Control208
Part IIIHeterogeneity and Conflicting Interests217
Chapter 7Elections and Changes of Policymakers219
7.2.Elections and Policymaker Performance223
7.3.The Opportunistic Political Business Cycle228
7.4.Partisan Political Cycles246
7.5.Competence and Prospective Voting268
7.6.Campaign Promises278
7.7.Interactions of the Executive and the Legislature283
7.8.Multiparty Systems and Endogenous Election Dates293
7.9.Tying the Hands of One's Replacement300
Chapter 8Redistribution309
8.2.Redistribution of Income311
8.3.Differential Transfers318
8.4.Nonmonetary Redistribution324
8.5.Rent Seeking and Predation334
8.6.Intergenerational Redistribution345
8.7.Redistribution and Mobility354
Chapter 9Public Goods372
9.2.Public Goods--The Neoclassical Approach375
9.3.Provision of Public Goods in Practice379
9.4.Voluntary Provision of Public Goods--Free Riders and Collective Action382
9.5.Voluntary Provision of Public Goods--Clubs391
9.6.The Static Public Goods Game395
9.7.The War of Attrition in Public Goods Provision397
Chapter 10Inaction, Delay, and Crisis403
10.2.Economic Arguments407
10.3.Vested Interests411
10.4.Nonadoption Due to Uncertainty about Individual Benefits414
10.5."Communication" Failures423
10.6.Conflict over the Burden of Reform432
10.7.Common Property Models439
10.8.Economic Crises444
Part IVApplication to Policy Issues455
Chapter 11Factor Accumulation and Growth457
11.2.Basic Models of Fiscal Policy and Capital Accumulation461
11.3.Imperfect Capital Markets, Externalities, and Endogenous Income Distribution474
11.4.Political Institutions and Regimes488
11.5.Socio-Political Instability500
11.6.Empirical Determinants of Growth513
Chapter 12The International Economy526
Part IExchange-Rate Arrangements529
12.2.Fixed versus Flexible Exchange Rates529
12.3.Currency Crises and Contagious Speculative Attacks536
12.4.Monetary Unions544
Part IIMacroeconomic Interdependence559
12.5.International Policy Cooperation559
12.6.Political Responses to External Shocks579
Part IIIInternational Capital and Aid Flows580
12.7.Capital Controls580
12.8.Sovereign Borrowing587
12.9.Foreign Aid601
Chapter 13Economic Reform and Transition615
13.2.Defining the Issues617
13.3.Economic and Political Constraints621
13.4.The Implications of Magnitude--A Formal Analysis626
13.5.Heterogeneity and Political Constraints632
13.6.Labor Reallocation643
13.8.Price Liberalization663
Chapter 14The Size of Government and the Number of Nations675
14.2.The Scope of Government677
14.3.The Size of Government--Government Spending679
14.4.Government Debt and Deficits690
14.5.Budgetary Rules and Institutions697
14.6.The Number of Nations707
Author Index765
Subject Index771

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