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

  • F. Ploeg
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    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

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    File URL: http://hdl.handle.net/10.1007/BF00159395
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    Article provided by Springer in its journal Public Choice.

    Volume (Year): 60 (1989)
    Issue (Month): 3 (March)
    Pages: 211-239

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    Handle: RePEc:kap:pubcho:v:60:y:1989:i:3:p:211-239
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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    1. Bruno S. Frey, 1978. "Keynesian Thinking in Politico-Economic Models," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 1(1), pages 71-81, October.
    2. Frey, Bruno S., 1978. "Politico-economic models and cycles," Journal of Public Economics, Elsevier, vol. 9(2), pages 203-220, April.
    3. van der Ploeg, Frederick, 1987. "Optimal Government Policy in a Small Open Economy with Rational Expectations and Uncertain Election Outcomes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 469-91, June.
    4. Lindbeck, Assar, 1976. "Stabilization Policy in Open Economies with Endogenous Politicians," American Economic Review, American Economic Association, vol. 66(2), pages 1-19, May.
    5. Frey, Bruno S & Ramser, Hans-Jurgen, 1976. "The Political Business Cycle: A Comment," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 553-55, October.
    6. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
    7. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69, pages 447.
    8. 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 730-36, September.
    9. Pissarides, Christopher A, 1980. "British Government Popularity and Economic Performance," Economic Journal, Royal Economic Society, vol. 90(3593), pages 569-81, September.
    10. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873.
    11. van der Ploeg, Frederick, 1984. "Government Ideology and Re-election Efforts," Oxford Economic Papers, Oxford University Press, vol. 36(2), pages 213-31, June.
    12. 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 317-37, June.
    13. Turnovsky, Stephen J., 1981. "The optimal intertemporal choice of inflation and unemployment An analysis of the steady state and transitional dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 357-384, November.
    14. MacRae, C Duncan, 1977. "A Political Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 239-63, April.
    15. Minford, Patrick & Peel, David, 1982. "The political theory of the business cycle," European Economic Review, Elsevier, vol. 17(2), pages 253-270.
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