The Endogenization of Government Behaviour in Macroeconomic Models

In chapter 2 we concluded that the present public choice and marxist approaches to the study of political processes, as far as relevant for the analysis of economic policy making, are unsatisfactory, for reasons of incoherency, insufficient empirical support, and lack of specificity~ It was suggested that a different approach to the subject might be fruitful. To that purpose, we now turn our attention to the so-called interest function approach to the study of politico-economic phenomena, that has been developed by Van Winden (1983). See also Van Winden (1987), Van Velthoven and Van Winden (1986). Without paying too much attention to the specific conduct of and intricate relationships between voters, politicians, bureaucrats and interest groups, the interest function approach intends to combine valuable elements of the marxist and public choice analyses. According to Van Winden (1983, p. 12) "this means that in studying the interaction between state and private sector, attention should be paid to: - social classes, and the impact of class/power relationships on political and economic processes; - the way that social power structures (involving the real control over state activities) are maintained or altered; - the relative autonomy of political processes (involving the state) and its consequences for, as well as its dependence on economic processes; - individual motivations; - the possibility of mathematical formalization. " Section 3. 2. will give a general introduction to the concepts and the line of argument of the interest function approach.

Contenu

0 What this Book is All About.- 1 The Traditional Theory of Economic Policy.- 1.1 The theory of economic policy.- 1.2 Empirical reaction function studies.- 1.3 Targets and instruments.- 1.4 Macroeconometric modelbuilding.- 1.4.1 A historical sketch.- 1.4.2 Critique.- 1.5 The preference function of the policy maker.- 1.5.1 Establishing the preference function.- 1.5.2 Optimizing or satisficing.- 1.6 Conclusions.- 2 The Impact of Politics, a Survey of the Literature.- 2.1 Introduction.- 2.2 The median voter model.- 2.3 Voting and popularity functions.- 2.3.1 Introduction.- 2.3.2 Theoretical foundation.- 2.3.3 Discussion and empirical findings.- 2.3.4 Summary.- 2.4 Government behaviour.- 2.4.1 Introduction.- 2.4.2 The political business cycle.- 2.4.3 Political parties and (macro) economic policy.- 2.4.4 The Frey-Schneider approach and related models.- 2.4.5 Two other models: crisis management and the permanent income hypothesis.- 2.4.6 Conclusion.- 2.5 The influence of the bureaucracy.- 2.5.1 Introduction.- 2.5.2 Bureaucrats as voters.- 2.5.3 Bureaucrats versus politicians within the public sector decision making process.- 2.5.4 Summary.- 2.6 Interest groups.- 2.6.1 Introduction.- 2.6.2 The logic of collective action.- 2.6.3 The influence of interest groups on public sector decision making.- 2.6.4 Summary.- 2.7 The Marxist approach.- 2.8 Conclusions.- 3. The Interest Function Approach.- 3.1 Introduction.- 3.2 Outline of the interest function approach.- 3.3 Discussion.- 3.4 Summary and conclusions.- 4. The Endogenization of State Expenditure and Taxation in a Simple Keynesian Model.- 4.1 Introduction.- 4.2 The behaviour of the state.- 4.3 A static Keynesian politico-economic model.- 4.4 Some dynamic aspects of the model.- 4.5 Summary.- 5. An Application to the Netherlands.- 5.1 Introduction.- 5.2 Data and empirical application.- 5.2.1 The data.- 5.2.2 State expenditure and tax receipts.- 5.2.3 The power coefficient ?.- 5.2.4 The power coefficient ? a transformation.- 5.3 Conclusions.- Appendix More on the data.- 6. A Dynamic Version of the Model with an Endogenous Social Power Structure.- 6.1 Introduction.- 6.2 General dynamics.- 6.3 A special case.- 6.4 Conclusion.- 7. Towards A Politico-Economic Theory of Social Security.- 7.1 Introduction.- 7.2 The behaviour of the state; social security policies.- 7.2.1 Social classes and interests.- 7.2.2 The behaviour of the state.- 7.2.3 Endogenization of the unemployment benefit level.- 7.2.4 Some additional remarks.- 7.3 Social security in a complete politico-economic model.- 7.3.1 The model.- 7.3.2 The effects of social security on production and employment.- 7.3.3 The effect of social security on the stability of the economy.- 7.3.4 Some first conclusions.- 7.3.5 Demographic developments.- 7.3.6 Changes in the effective interest structure A.- 7.4 Empirical application.- 7.4.1 Introduction.- 7.4.2 Regression results.- 7.4.3 An exercise in revealed preference.- 7.5 Conclusion.- Appendix Data for application of the model including the social security system.- 8. Towards a behavioural-theoretic Analysis of Budget deficits.- 8.1 Introduction.- 8.2 The model.- 8.2.1 Introduction.- 8.2.2 The model.- 8.2.3 Alternative formulations.- 8.3 Discussion.- 8.3.1 Introduction.- 8.3.2 Impact of the preferences for private and public goods.- 8.3.3 Impact of the time preferences and time horizons.- 8.3.4 Income versus profit taxes.- 8.3.5 Impact of the level of state debt and the rate of interest.- 8.3.6 Impact of the size and the growth rate of the tax base.- 8.3.7 Impact of the time horizon.- 8.3.8 Conclusions.- 8.4 The budget deficit over time; some preliminary results.- 8.4.1 Introduction.- 8.4.2 The budget deficit along a steady growth path.- 8.4.3 The budget deficit along the business cycle.- 8.5 Conclusion.- 9. Epilogue.- Notes.- References.- Author Index.