Macroeconomic Policy and Public Choice

The subject is the intersection between politics and macroeconomics. The political economic equilibrium links theories of macroeconomics and public choice. The four-year election cycle implies that this equilibrium may be a cycle rather than a point. An extension of standard Keynesian theory provides a model of endogenous stabilization in which the president practices short-run stabilization policy to dampen the impact of exogenous shocks. This is a situation in which discretion is better than a policy rule; the voters support discretionary policy. We assume rational voters and rational economic agents in the spirit of new classical macroeconomics. Special attention is given to the relevant data and to the possibility of hypothesis testing.
TOC: Contents: A Historical Introduction.- Microeconomic Foundations.- Social Choice.- Short-Run Macro Models.- The Phillips Curve and Expectations.- Fiscal and Monetary Policy.- Keynesian Business Cycle.- Citizen Preferences.- Endogeneous Stabilization and Macroeconomic Ideology.- Political Business Cycles.- Government Debt, Deficit and Social Security.- Conclusion.