Macroeconomic Policy and Public Choice [Paperback]

This book considers the connections between macroeconomics and government politics. The central idea is the existence of a political economic equilibrium in which the government acts to dampen the business cycle. Special attention is given to relevant data and to the possibility of hypothesis testing. This is a revised and extended study edition that is updated to include topics such as political business cycles, government debt, and deficit and social security.Subject of this book is the intersection between political science and macroeconomics. The central idea is the existence of a political economic equilibrium in which the government acts to dampen the business cycle. The election cycle implies that this equilibrium may be a cycle rather than a point. An extension of new Keynesian theory provides a model of endogenous stabilization in which the government practices short-run stabilization policy which dampens the impact of exogenous shocks. This is a situation in which rational voters favor discretionary policy over a fixed policy rule even with rational economic agents. Special attention is given to the relevant data and to the possibilities of hypothesis testing.A Historical Introduction: The Keynesian revolution and the evolution of government`s role.- Keynesian orthodoxy.- The political consequences of depression proofing.- The economic consequences of depression proofing.- Schools of thought.- Ideology and politics.- The market failure rationale for government intervention.- Public choice.- Conclusion.- Microeconomic Foundations: Introduction.- Consumers.- Producers.- General equilibrium.- Pareto efficiency.- Social welfare functions.- Unemployment and inflation.- The government budget and economic policy.- Conclusion.- Social Choice: Introduction.- The theoretical superiority of majority rule.- The impossibility of asking for move.- Median voter model.- Two-dimensional social choice.- Probabilistic voting.- Political information and party ideology.- ConlÃX