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Disposable income, unemployment, inflation and state spending in a dynamic political-economic model

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  • F. Ploeg

Abstract

This paper formulates a medium-term macroeconomic model of disposable income, unemployment, inflation and state spending, proposes a theory of qualitative choice to explain electoral popularity in terms of these variables and develops three approaches to the formulation of political-economic policy. The first approach is static, sets the tax rate to reconcile the interests of various pressure groups and yields a political trade-off between the private and public sector. The second approach relies on maximizing the probability of winning the next election and gives rise to a political business cycle unless the electorate votes strategically. The implications of crowding out of private investment under alternative monetary rules, autonomous behaviour of the state bureaucracy and tax-indexation for the political business cycle are also examined. The third approach analyzes the objective of maximizing the uninterrupted length in office. It yields a short-run political cycle superimposed on a longer cycle. Copyright Kluwer Academic Publishers 1989

Suggested Citation

  • F. Ploeg, 1989. "Disposable income, unemployment, inflation and state spending in a dynamic political-economic model," Public Choice, Springer, vol. 60(3), pages 211-239, March.
  • Handle: RePEc:kap:pubcho:v:60:y:1989:i:3:p:211-239
    DOI: 10.1007/BF00159395
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    References listed on IDEAS

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    1. Pissarides, Christopher A, 1980. "British Government Popularity and Economic Performance," Economic Journal, Royal Economic Society, vol. 90(3593), pages 569-581, September.
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    12. Minford, Patrick & Peel, David, 1982. "The political theory of the business cycle," European Economic Review, Elsevier, vol. 17(2), pages 253-270.
    13. Chrystal, K Alec & Alt, James E, 1981. "Some Problems in Formulating and Testing a Politico-Economic Model of the United Kingdom," Economic Journal, Royal Economic Society, vol. 91(363), pages 730-736, September.
    14. Turnovsky, Stephen J, 1974. "On the Role of Inflationary Expectations in a Short-Run Macro-Economic Model," Economic Journal, Royal Economic Society, vol. 84(334), pages 317-337, June.
    15. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
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