Discussion Paper Details

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Title: Political Economics and Macroeconomic Policy

Author(s): Torsten Persson and Guido Tabellini

Publication Date: December 1997

Keyword(s): Budget Deficits, Credibility, Fiscal Policy, Monetary Policy and Politics

Programme Area(s): International Macroeconomics

Abstract: This paper surveys the recent literature on the theory of macroeconomic policy. We study the effect of various incentive constraints on the policy-making process, such as lack of credibility, political opportunism, political ideology, and divided government. The survey is organized in three parts. Part I deals with monetary policy in a simple Phillips curve model, and focuses on credibility, political business cycles, and optimal design of monetary institutions. Part II deals with fiscal policy in a dynamic general equilibrium set up; the main topics covered in this section are credibility of tax policy, and political determinants of budget deficits. Part III studies economic growth in models with endogenous fiscal policy.

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Bibliographic Reference

Persson, T and Tabellini, G. 1997. 'Political Economics and Macroeconomic Policy'. London, Centre for Economic Policy Research.