Political Economics: Explaining Economic Policy

Citation

Persson, T., & Tabellini, G. (2002). Political Economics: Explaining Economic Policy. MIT Press.

Chapter Summary

The book runs to about 550 pages. Its contents list, in page order, moves from an introduction and a set of tools, through models of elections, agency and special interests, to comparative politics, dynamic questions and monetary policy, and closes with a chapter on what comes next and an author index.

General Introduction

Sets out the field. The publisher's description frames it as a literature that asks what determines the size and form of redistributive programmes, the provision of public goods, the burden of taxation, the size of deficits and the stance of monetary policy, and notes that there is little consensus on the right mode of analysis. The introduction leads into the authors' proposal for a unified approach.

Tools of Political Economics

The first substantive section, about thirty pages long. Its title shows that it supplies the modelling tools used in the rest of the book.

Electoral Competition; Agency; Partisan Politicians

Three sections on elections and the politicians who contest them. The publisher's description names the agency problem between voters and politicians, which arises when policy decisions are delegated to elected representatives, as one of the book's central ideas; the sections on electoral competition and partisan politicians sit alongside it.

Redistributive Politics; Special-Interest Politics

Two sections on redistribution and on special interests. The publisher's description lists the size and form of redistributive programmes and the provision of public goods among the questions the book sets out to explain.

Comparative Politics; Institutions and Accountability; Political Regimes

Where the book turns to institutions. The publisher's description says that political institutions shape the procedures for setting policy and electing politicians, and these three sections bring comparative politics, accountability and political regimes into the framework.

Dynamic Politics; Capital Taxation; Public Debt; Growth

The dynamic block. After a section on dynamic politics, three applications follow: the taxation of capital, public debt and economic growth.

Monetary Politics; Electoral Cycles; Institutions and Incentives; International Policy Coordination

The final application area is monetary policy. The headings cover monetary politics and electoral cycles, institutions and incentives, and international policy coordination.

What Next?

A closing section, after which come the author index and end matter. The publisher's description says that the authors identify the main outstanding problems of the field.

Key Concepts

Elections and agents

• Rational citizens' policy preferences: individual citizens behave rationally, with preferences over economic outcomes inducing preferences over policy, as in modern macroeconomics.
• Electoral competition: the contest between candidates or parties for votes, which the book treats as a source of policy.
• Agency problems between voters and politicians: the possible conflict when policy decisions are delegated to elected representatives, a feature the book takes from public choice.
• Partisan politicians: a topic the contents list treats alongside electoral competition and agency.

Institutions and policy

• Special-interest politics: how organised groups influence the policy that elected representatives choose.
• Political regimes and institutions: the rules for setting policy and electing politicians, which the book takes from rational choice in political science.
• Accountability: the relationship between institutions and voters' ability to hold politicians to account.

Policy areas

• Capital taxation, public debt and growth: the main fiscal and dynamic applications.
• Electoral cycles and monetary institutions: the book's treatment of monetary policy and the political business cycle.

Critical Analysis

Strengths

• A deliberate synthesis. According to the publisher, the authors combine three traditions: the theory of macroeconomic policy, public choice and rational choice in political science. Reading the book is therefore a way of seeing how those traditions fit into one framework rather than meeting them separately.
• One method across many topics. The publisher says the authors outline a common method of analysis, and the contents list applies it to redistribution, special interests, regimes, taxation, debt, growth and monetary policy.
• Breadth of application. The book covers both the fiscal and the monetary side of policy, and includes comparative questions about institutions and international coordination.
• A map of the field's open problems. The closing "What Next?" section, and the publisher's statement that the authors identify outstanding problems, make the book useful for finding research topics.

Limitations

• Takes a side in a methodological dispute. The publisher says there is "little consensus" on the right mode of analysis, so the unified approach is the authors' proposal, not a neutral survey of competing methods.
• Dated as a research guide. The book is from 2000 in hardback and 2002 in paperback, and later work on the questions it names is not covered.
• Heavy going without economics. The framework is built from rational individuals and models of policy-setting, so readers without training in economic modelling will find the opening sections slow.
• Long. At about 550 pages, with a tools section placed before the applications, it is a book to work through over a term rather than to skim.

Where It Fits in the Course

This is the most formal book in the political economy list. Capitalism: A Very Short Introduction is a short non-technical introduction for readers with no economics background, and International Political Economy and Comparative Political Economy are textbooks that explain interests, institutions and ideas in prose. Any of these gives the substantive background that the models here assume.

Olson's The Logic of Collective Action is a classic verbal account of why organised groups form and succeed; special-interest politics is also a topic of this book, treated within a model-building framework. Varieties of Capitalism is an edited volume built around firms and coordination, a different perspective on institutions. Read Persson and Tabellini after the textbooks if the goal is to learn how political economists model elections and policy.

How to Use This Book

The book is for readers with a background in economics or formal political theory: graduate students in political economy, public economics or comparative politics, and advanced undergraduates who are comfortable with modelling. Political science students without that background can use the introduction and the section openings but will need preparation to follow the models.

A practical plan:

• Core: the introduction, the tools section, and the sections on electoral competition and agency. Everything later depends on them.
• By interest: choose among redistributive and special-interest politics, comparative institutions, or the fiscal and monetary applications according to the course.
• For research: read "What Next?" last and use it to list open questions to follow up in journals.
• Active reading: after each section, restate the model's assumptions and its main result in words before moving on.