Putting in politics: A review of economic models with endogenous determination of policy

The new political economy includes formal models in which the notion of general equilibrium extends to political as well as economic processes. Policies are determined endogenously. This paper first reviews models in which trade taxes and subsidies are tied to the optimal tariff of the median voter, to the interests of industry-specific lobbies and an incumbent politician, or to the attempts of competing parties to maximize the probability of their election. The paper then briefly considers models focusing on fiscal policy, macroeconomic stabilization, and the sequencing of economic reform. At the end of the paper, several critical questions are raised.