Working Paper: NBER ID: w2405
Authors: Daniel E. Ingberman; Robert P. Inman
Abstract: If there has been a dominant trend in the evolution of the modern industrial societies of this century it has been the growing importance of government in the allocation of social resources. It is important that we appreciate the fundamentally political nature of the formation of government economic policy. This survey reviews and assesses our present understanding of how the political system might shape a nation's fiscal policy. Our approach is eclectic, drawing both from economics and political science, and decidedly micro-analytic in its orientation. From economics we adopt the perspective of utility maximizing agents and the analytics of trade, agreement, and market failure. From political science we learn just how and when these individual agents might act collectively to provide public goods, redistribute income, or issue government debt. Together the micro-analytics of economics and political science form the core theory of the 'new' political economy and provide a framework for understanding the emergence, and the performance, of governments. There is no more important test for the new discipline than providing a compelling explanation for the formation of fiscal policy in democratic societies.
Keywords: Fiscal Policy; Political Economy; Public Goods; Majority Rule
JEL Codes: H11; H70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political system (P16) | fiscal policy (E62) |
| political incentives (D72) | inefficiencies in fiscal policy (E62) |
| majority rule processes (D72) | unstable outcomes (C62) |
| intransitive preferences (D11) | unstable outcomes (C62) |
| structured political institutions (P16) | stability in fiscal decision-making (E63) |