Vox Populi,Vox Dei? Tacit collusion in politics

We study competition between political parties in repeated elections with probabilistic voting. This model entails multiple equilibria, and we focus on cases where political collusion occurs. When parties hold different opinions on some policy, they may take different policy positions that do not coincide with the median voter's preferred policy platform. In contrast, when parties have a mutual understanding on a particular policy, their policy positions may converge (on some dimension) but not to the median voter's preferred policy. That is to say, parties can tacitly collude with one another, despite political competition. Collusion may collapse, for instance, after the entry of a new political party. This model rationalizes patterns in survey data from Sweden, where politicians on different sides of the political spectrum take different positions on economic policy but similar positions on refugee intake—diverging from the average voter's position, but only until the entry of a populist party.     

Politics with(out) Coase

Political markets may be curative of political externalities, yet they are often unviable due to the presence of bargaining externalities. In this paper, we study the extent to which the choice of voting dimensions may affect the viability of Coasian bargaining in a political context. The results suggest that bargaining in a multi-dimensional policy space, although desirable in an ideal world of zero-transaction costs, is almost unavoidably affected by bargaining externalities. Disaggregating the policy choices and voting in a one-dimensional policy space can reduce bargaining externalities and lead to median voter outcomes. Bargaining by a limited number of players in a median voter situation can achieve a social first-best. We show the equivalence between the outcomes of multiple independent voting in one-dimensional space and the hypothetical outcome of Coasian bargaining in a multi-dimensional policy space.     

前瞻性货币政策反应函数在我国货币政策中的检验

本文在泰勒等西方学者对货币政策反应函数研究的基础上,构造一个适合我国国情的前瞻性货币政策反应函数,从市场利率(同业拆借利率)、管制利率(存贷款利率)以及两者利差三个层次,通过该反应函数对我国货币政策的实证检验结果发现,一方面,该反应函数能够很好地描述同业拆借利率、存贷款利率和两者利差的具体走势,能够为我国货币政策的制定提供一个参考尺度,以衡量货币政策的松紧。另一方面,检验结果表明,三个层次的利率对预期通胀率和预期产出的反应绝大多数都不足,这说明,我国货币政策是一种内在不稳定的货币政策。     

POLITICAL MONETARY CYCLES UNDER ALTERNATIVE INSTITUTIONS: THE INDEPENDENT TREASURY AND THE FEDERAL RESERVE

The theory of opportunistic political business cycles predicts incumbent politicians will alter their economic policies to spur short-run growth to attract additional votes for the upcoming election. There has not been much emphasis on the possibility of historical political business cycles prior to the Keynesian Revolution. No study has yet undertaken a systematic approach to testing for policy cycles during this period. Our study will bridge this gap by considering cycles in monetary policy for the periods of 1879–1914 until the start of Fed operations, and 1914–1932 until abandonment of the gold standard. To properly test for political cycles, it is necessary to develop reaction functions for the Treasury and compare against the reaction function later held by the Fed. This also reveals that creation of an independent monetary authority to be insulated from political pressures changed the manner in which policy was directed, aside from political issues. The evidence is not consistent, however, with monetary cycles closely tied to electoral concerns.     

Second-best theory and the use of multiple policy instruments

In many cases policy makers employ multiple instruments to address a single environmental problem, but much of the economics literature on instrument choice focuses on comparing properties of single policy instruments. We argue that under a fairly broad set of circumstances the use of multiple policy instruments can be justified as optimal in a second-best world. We examine two broad categories of second-best policy making: cases with multiple market failures only some of which can be corrected at any one time; and cases with exogenous (often political) constraints that cannot be removed. The fact that the use of multiple policy instruments can be justified economically in these two cases does not imply, however, that all multiple instruments employed in actual practice are economically justified.     

POLITICS AND THE NEW RESOURCE ECONOMICS

Two competing theories generally used, at least implicitly, to justify and analyze public resource management are scientific management and pluralism. We briefly review these theories and compare them to the new resource economics, an emerging body of theory which revises resource economics by introducing concepts from Austrian economics, property rights theory, and public choice. We argue that the new resource economics is superior to these traditional theories and then present specific policy proposals for the national forests, wilderness areas, and the public grazing lands. We also criticize new resource economists for not clearly distinguishing ideology from science, for emphasizing efficiency as a criterion for policy analysis, and for lacking political strategies for implementing their proposals     

Costs of change and political polarization

We study a two-period model of policy-making where (i) changes of current policies impose costs on all individuals that increase linearly with the magnitude of the policy shift and (ii) political power changes over time. We show that policy polarization is minimal for intermediate marginal costs. In turn, welfare is a single-peaked function of the marginal cost. One interpretation is that societies with political institutions that impose positive but moderate costs on political reforms simultaneously achieve the highest welfare and the lowest policy polarization.     

Heterodox Economic Thinking and Public Policy

Research on innovation and entrepreneurship policy (IEP) is almost exclusively concerned with the instrumental question of which policy measures are most effective in promoting “productive” entrepreneurial activities. The positive (political economy) and normative (welfare) dimensions are largely neglected. I focus on the latter, asking what could be a plausible normative rationale for innovation policy beyond the simple invocation of “growth” and the related use of orthodox criteria (such as “market failure”). This is a non-trivial issue, given (i) the ambiguous welfare implications of innovation in general, and (ii) the fact that standard notions of welfare cannot be consistently applied in an entrepreneurial, “Schumpeterian” economy. I suggest a dynamic criterion according to which IEP should ensure that individuals are able to engage in effective preference learning over time. This reconstruction of the normative basis of innovation policy helps clarify several contentious issues, among which are the desirability of selfemployment and the role of social security arrangements.     

Monetary and Fiscal Management, Finance, and Growth

This paper addresses three related aspects of monetary and fiscal management in Europe and elsewhere. First, I discuss the implications of economic integration for monetary and fiscal policy, especially the narrow focus on low inflation as the main objective of monetary policy. I argue that because inflation springs from several sources, monetary authorities held responsible by law for maintaining low inflation need to exercise their newfound independence by reserving the right to address all sources of inflation. In this context, I also ponder the question as to whether the increased independence of fiscal policy from short-term political interference would be desirable. Second, I present new empirical evidence of the relationship between inflation, finance, and economic growth across countries, arguing that long-run growth considerations provide an important additional justification for why price stability ought to remain a priority of independent policy makers. Third, I review some further aspects of the relationship between fiscal policy and economic growth, emphasizing the traditional three-pronged role of fiscal management: stabilization, allocation, and distribution, all of which can be conducive to growth. The argument leads to the conclusion that only the stabilization function of fiscal policy and, perhaps, some aspects of the allocation function as well could be usefully delegated in an attempt to immunize them from shortsighted and socially counter-productive political interference, but not the distribution function.     

Spaghetti regionalism or strategic foreign trade: some evidence for Mexico

After signing 10 free trade agreements (FTAs) between 1993 and 2001, Mexico as a world leader in foreign trade policy continues to negotiate with countries such as Japan, Panama, Uruguay or Argentina. Criticism of multiple regional trade agreements (RTAs) arises from a consistency test, but also from the ability of a country to administer them. Mexico's multiple agreements have generally used the principle of NAFTA consistency, after the acceptance that NAFTA became a broader and deeper accord than results of the Uruguay multilateral achievements. An analysis of multiple RTAs is presented, including a game model of equilibrium, along with a political economy approach of why Mexico seeks multiple RTAs as its foreign trade policy.     

A political economy perspective of direct democracy in ancient Athens

Using a political economy framework the paper argues that in ancient Athens direct democracy, absence of political parties and appointment to office by lot were inextricably linked. Direct rather than representative democracy was in the interest of the constitutional framer at the time of the transition to democracy. Deciding directly each policy issue under majority rule diminished the intermediation function of political parties, a tendency possibly reinforced by an integrative ideology of defending the polis. In the absence of political parties to fight elections and distribute rents from office, appointment of office-holders by lot randomized their selection, a process which yielded an accurate representation of individual preferences, and distributed rents irrespective of the private wealth of individual citizens.     

SHOULD CENTRAL BANKS CARE ABOUT REGIONAL IMBALANCES?

Regional imbalances may arise both as a result of asymmetric shocks and of divergent responses to symmetric shocks, such as monetary policy shocks. This paper analyses flexible inflation targeting when regional imbalances are included in the loss function. By adding regional imbalances, the time‐inconsistency problem in monetary policy becomes more complex. The paper analyses alternative institutional arrangements designed to improve the discretionary equilibrium. Even in the absence of an over‐ambitious output target, it is shown that the outcome of monetary policy is improved if the central bank places less weight on regional imbalances than the political authorities.     

Monetary Policy, Delegation and Polarisation

This paper studies the relation between political polarisation and delegation of stabilisation policy. There is asymmetric information about how the economy works: unlike voters, two political parties know the variance of an employment shock. Prior to an election each party proposes a central banker to be chosen if the party wins. If political polarisation is small, voters will learn the true variance and the central banker and the stabilisation policy are the ones most preferred by the median voter. If the political polarisation is high, stabilisation policy does not reflect the variance but only the preferences of the winning party.     

The Political Economy of Policy Vacuums: The European Commission on Demographic Change

ABSTRACT

Supranational organisations can only confront politico-economic issues that are recognised as important. Typically, issues gain recognition either when they provide an external shock to the system, shaking political actors into action, or when they are framed as important in policy networks concerned with developing the appropriate scientific approach. Ideally political and scientific actors align in creating pressures to recognise the issue as salient and to mobilise organisational responses. Issues differ in their capacity to be driven by both political and scientific pressures, creating crisis management, technocratic, and reform agenda outcomes. Here we explore a further variation, where pressures around an issue are insufficient, creating a policy vacuum. We examine one such policy vacuum in Europe: demographic change. This issue belongs to no particular Directorate-General in the European Commission, but is subject to policy frames from DG EMPL and DG ECFIN. Without sufficient political and scientific pressures, no particular policy position is occupied and advocated despite recognition of the issue’s importance. We discuss the role of policy vacuums and the need for their identification in political economy research.     

对外经济政策的国内政治影响因素——国际政治经济学的视角

作为西方主流经济学的国际经济学,忽视了国内政治因素尤其是政治制度在对外经济政策中的重要作用。国际政治经济学作为一门新兴学科,将政治因素纳入了经济学的分析框架,从政治与经济相互结合的视角探讨影响对外经济政策的因素。在实行代议民主制的国家,作为政治制度主要行为体的利益集团和左右翼政党的政策偏好,以及不同的民主模式,对贸易政策、汇率政策和资本流动政策的选择都具有十分重要的影响。     

Policy Positions, Information Acquisition and Turnout

This paper explores the relationship between policy positions, information acquisition and turnout. In particular, information acquisition and turnout choices are characterized as a function of citizens' policy positions. It is found that middle‐of‐the‐road citizens are the most likely to both acquire political information and abstain. Comparative‐statics analysis of the information technology indicates that an increase in the effectiveness of information has a higher (positive) impact on information and turnout than a comparable decrease in the cost of information. Furthermore, following a polarization, information and abstention are found to increase.     

A political economy approach to endogenous industrial policies

This paper uses a political economy perspective to study the endogenous formation of economic policies and its interplay with political institutions. This paper provides a novel view that both the institutions and economic development status are essential factors in endogenously determining economic policies. The model aims to explain both the differences in the degree of adopting industrial policies as well as the differences in the types of industrial policies being implemented. Using a concise framework with two country-specific characteristics, the baseline model can capture three main types of industrial policy platforms of interest. In a country where voters’ political awareness is positively skewed and press freedom is relatively low, pro-heavy industry policies would be present most of the time; South Korea is representative of this type of countries. In a country where voters’ political awareness is positively skewed and press freedom is relatively high, there is usually an active industrial policy, though the target of the policy changes over time. Specifically, the policy is favoring the industry of which the industry-specific TFP is relatively high; Japan is representative of this type of countries. In a country where voters’ political awareness is negatively skewed and press freedom is relatively high, there is usually no active industrial policy; the U.S. is representative of this type of countries.     

一般均衡中的利率、确定性与最优规则

利率规则理论是以短期利率作为货币政策工具而发展起来的一套新的理论,它体现了货币经济学家在货币政策领域内的新的尝试和努力。在利率规则理论中,货币经济学家试图解决两个问题:利率规则冲击对非政策经济变量的短期影响是什么,以及一个好的利率规则应当具有怎样的性质。利率规则将短期利率作为非政策经济变量的内生反应函数,使得货币经济学家可以在一般均衡模型中探讨这两个问题。然而,由于利率规则从一开始就是出于一种偏好的设定,因此,讨论的结果并不符合稳健性和科学性的要求,这就削弱了理论预言的可靠性。在某种意义上,利率规则理论若想成为一门真正的"科学的艺术",它就必须为内生利率规则寻找到一个坚固的微观基础。本文梳理评述了利率规则理论在经验上和理论上的成就和不足。     

The Political Economy of Fiscal Consolidations

In the context of recent research in political economy, this paper addresses the policy problem of fiscal consolidation in terms of three types of issues: i) the macroeconomic effects of alternative strategies to consolidate; ii) the institutional setups conducive to a consolidation; and iii) the best strategy for implementing a consolidation in order to maximize its political feasibility. One methodological feature of this survey is an emphasis on policy feasibility. One methodological feature of this survey is an emphasis on policy issues in order to bridge the gap between the level of abstraction of politico-economic models of fiscal policy and the issues faced by a policymaker when attempting a fiscal consolidation.     

Economic inequality and paretian welfare economics: Some insinuating questions

This paper examines the academic soundness of the Pareto welfare criterion as a normative rule for evaluating alternative economic inequality scenarios and suggests that the criterion has several weaknesses, which weaken its usefulness. First, the Pareto principle is of limited use in the inequality debate because labor markets hardly satisfy the conditions of perfect competition, the pivotal assumption of the theory. Second, the proposition that competitive equilibrium leads to the “common good” of society is difficult to defend. Third, the Paretian welfare economics barely answers the questions society demands, because perfect competition does not guarantee fairness in the determination of relative prices in the initial situation of income distribution. Fourth, in the distribution theory, the marginal productivity principle determines the rewards to the factors of production. If we assume that rent, wage and interest incomes are determined by this theory, then questions arise about how profits, the potentially huge surpluses generated by the businesses, are distributed. Fifth, income distribution, being a public policy topic, is a political issue. However, Pareto's primary motivation in formulating the principle was to alienate the income distribution debate from political and policy discourses. Finally, by invoking the Pareto principle, economists are in fact avoiding the real issues of the public debate on personal distribution of income. Personal income distribution truly refers to division of income generated by a group of people working together and therefore, ought to be analysed with reference to the sector of employment. Thus, Tommy Franks' earning should be compared with that of a private, while an ordinary worker's salary should be compared with that of the CEO. History testifies that the public earning structure is much more equitable than that of the private sector. This poses a very serious question: Which earning structure reflects improvement in social welfare: public or private?