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Introduction to the special issue on political-economic modelling
European
Journal
of Political
Economy
7 (1991) 435437.
North-Holland
Introduction to the Special Issue on Political-Economic Modelling Vani K. Borooah Faculty of Business and Management, Ireland
Friedrich
University
of Ulster, Newtownabbey,
BT37 OQB, Northern
Schneider
Faculty of Social and Economic Studies, University
of Linz, 4040 Linz, Austria
This special issue of the Journal is devoted to the theme of politicaleconomic modelling and the eight papers published in it represent a variety of perspectives from which this theme is viewed; indeed one of the criteria that the editors employed in making their selection was that the published set should reflect the richness and diversity of the subject: as a consequence many, otherwise worthy, contributions were omitted on the grounds that their inclusion would have been repetitious. Yet another selection criteria was that the papers should explicitly employ ‘modelling’ techniques whether mathematical or statistical. By this we meant that the contributions should, in one way or another, represent the analytical distillation - using quantitative methods - of the salient features of the prevailing political and economic realities; by juxtaposition this meant a bias against purely discursive or descriptive papers - notwithstanding the excellence of many of the latter type of contributions that we received, we really felt that they belonged to a different home. The last criterion that we adopted was that the final selection of papers should represent a healthy balance between theoretical and empirical papers. It is our hope that in attempting to meet these criteria we have succeeded in obtaining a set of papers that express the complexity, the diversity and, at the same time, the essential unity of the subject matter that constitutes the field of political economics. A classic theme in political-economics has been the political business cycle _ the seminal contribution of Nordhaus having been followed by a number of papers on whether or not economic cycles could be generated by political considerations. Reinhard Neck’s paper falls into this category; he considers a 017~2680/91/$03.50
0
1991-Elsevier
Science Publishers
B.V. All rights reserved
436
Editorial
continuous-time dynamic macroeconomic model for a closed economy with a vertical long-run Philips-curve and superimposes upon this a quadratic objective function penalising deviations of employment and inflation rates from their equilibrium values. Using this model two types of government behaviour - ‘social welfare maximising’ and ‘vote maximising’ - are analysed, the object being to discover the optimal path of policy under both scenarios. Another paper on this important theme of political business cycles is that by Feichtinger and Wirl; they develop a positive model of inter-temporal subsidy strategies for an authoritarian and dynastic government and show, through an application of the Hopf bifurcation theorem, that the optimal strategies may be cyclical. The obverse of the political business cycle is the popularity function - does economic performance matter in terms of political popularity. This question is addressed in econometric terms by Lewis-Beck for the French national elections pertaining both to the Presidency and the National Assembly; his contribution is to construct a general econometric model of French elections and then to subject this model to forecasting scrutiny. Another quite important topic is tackled by the paper of Gebhard Kirchgassner, in which he argues that government voters have a more positive perception of the general economic situation than do opposition voters. After developing a theoretical model, Kirchgassner presents empirical evidence for the Federal Republic of Germany over the period 1972-1982, and he shows that government voters generally had a more positive perception during this period than did traditional opposition voters. But also Kirchgassner argues that this evidence is far from being overwhelming. Interaction between governments and electorates, either through political cycles or through popularity functions, is one aspect of political economics competition between candidates and parties aspiring to political office is another. This latter aspect is the subject of Rose-Ackerman’s paper. In her model, candidates wish to maximise their chances of electoral competition but do not know how their chosen political strategies would translate into votes. The result, in a two-candidate plurality contest, is a ‘knife-edge’ outcome, where, at 50 per cent of the expected vote, a candidate shifts from the most risky to the most cautious strategy. Under alternative voting procedures and situations this ‘knife-edge’ only disappears under some forms of proportional representation. The relationship between governments at different levels is the subject of Renaud and van Winden’s paper. Van Winden is well known in the literature for his ‘interest function’ approach to political economics in which the electorate is viewed not as a homogenous entity but as a collection of separate entities each representing disparate (and sometimes conflicting) interests. In the Renaud and van Winden paper this approach is applied to analysing the relations between the three-tiered governmental structure -
Editorial
437
central, provincial and local - of the Netherlands. The two authors use the model to explain the different expenditure patterns of the various Dutch local governments by the fact that differences in the composition of their electorates lead to differences in their preference structure and hence to differences in expenditure patterns. One of the most urgent and contentious issues in Europe today is, arguably, the nature of the political and economic relations between the member states of the European Community (EC) and the supra-national body embodied in the Community collective. Markose-Cherian argues that the political economy of Europe is crucially tied to the Kantian quality of end-independence of rules that coercive authorities may legitimately enforce. In the creation of a larger market order within the EC these rules can be observed to emerge from a negative selection process - rules are progressively eliminated as unjust as they canot be ‘universalised’ over a larger territory and population. The subject of the political and economic consequences of European integration is also that of the paper by Schwidrowski and Wahl. They argue that the elimination of intra-EC border controls leaves governments with four adjustment options: maintenance of the country of destination principle but replacement of border controls by adequate national or EC-wide institutions; a shift to the country of origin principle; harmonisation of tax rates and lastly, centralisation of the power of tax. These options are analysed within the context of a single-period general equilibrium model and it is argued that, if an objective of governments is to increase their size of their discretionary budgets, then, in a post-EC single market world, only tax centralisation offers this potential.
Journal
of Political
Economy
7 (1991) 435437.
North-Holland
Introduction to the Special Issue on Political-Economic Modelling Vani K. Borooah Faculty of Business and Management, Ireland
Friedrich
University
of Ulster, Newtownabbey,
BT37 OQB, Northern
Schneider
Faculty of Social and Economic Studies, University
of Linz, 4040 Linz, Austria
This special issue of the Journal is devoted to the theme of politicaleconomic modelling and the eight papers published in it represent a variety of perspectives from which this theme is viewed; indeed one of the criteria that the editors employed in making their selection was that the published set should reflect the richness and diversity of the subject: as a consequence many, otherwise worthy, contributions were omitted on the grounds that their inclusion would have been repetitious. Yet another selection criteria was that the papers should explicitly employ ‘modelling’ techniques whether mathematical or statistical. By this we meant that the contributions should, in one way or another, represent the analytical distillation - using quantitative methods - of the salient features of the prevailing political and economic realities; by juxtaposition this meant a bias against purely discursive or descriptive papers - notwithstanding the excellence of many of the latter type of contributions that we received, we really felt that they belonged to a different home. The last criterion that we adopted was that the final selection of papers should represent a healthy balance between theoretical and empirical papers. It is our hope that in attempting to meet these criteria we have succeeded in obtaining a set of papers that express the complexity, the diversity and, at the same time, the essential unity of the subject matter that constitutes the field of political economics. A classic theme in political-economics has been the political business cycle _ the seminal contribution of Nordhaus having been followed by a number of papers on whether or not economic cycles could be generated by political considerations. Reinhard Neck’s paper falls into this category; he considers a 017~2680/91/$03.50
0
1991-Elsevier
Science Publishers
B.V. All rights reserved
436
Editorial
continuous-time dynamic macroeconomic model for a closed economy with a vertical long-run Philips-curve and superimposes upon this a quadratic objective function penalising deviations of employment and inflation rates from their equilibrium values. Using this model two types of government behaviour - ‘social welfare maximising’ and ‘vote maximising’ - are analysed, the object being to discover the optimal path of policy under both scenarios. Another paper on this important theme of political business cycles is that by Feichtinger and Wirl; they develop a positive model of inter-temporal subsidy strategies for an authoritarian and dynastic government and show, through an application of the Hopf bifurcation theorem, that the optimal strategies may be cyclical. The obverse of the political business cycle is the popularity function - does economic performance matter in terms of political popularity. This question is addressed in econometric terms by Lewis-Beck for the French national elections pertaining both to the Presidency and the National Assembly; his contribution is to construct a general econometric model of French elections and then to subject this model to forecasting scrutiny. Another quite important topic is tackled by the paper of Gebhard Kirchgassner, in which he argues that government voters have a more positive perception of the general economic situation than do opposition voters. After developing a theoretical model, Kirchgassner presents empirical evidence for the Federal Republic of Germany over the period 1972-1982, and he shows that government voters generally had a more positive perception during this period than did traditional opposition voters. But also Kirchgassner argues that this evidence is far from being overwhelming. Interaction between governments and electorates, either through political cycles or through popularity functions, is one aspect of political economics competition between candidates and parties aspiring to political office is another. This latter aspect is the subject of Rose-Ackerman’s paper. In her model, candidates wish to maximise their chances of electoral competition but do not know how their chosen political strategies would translate into votes. The result, in a two-candidate plurality contest, is a ‘knife-edge’ outcome, where, at 50 per cent of the expected vote, a candidate shifts from the most risky to the most cautious strategy. Under alternative voting procedures and situations this ‘knife-edge’ only disappears under some forms of proportional representation. The relationship between governments at different levels is the subject of Renaud and van Winden’s paper. Van Winden is well known in the literature for his ‘interest function’ approach to political economics in which the electorate is viewed not as a homogenous entity but as a collection of separate entities each representing disparate (and sometimes conflicting) interests. In the Renaud and van Winden paper this approach is applied to analysing the relations between the three-tiered governmental structure -
Editorial
437
central, provincial and local - of the Netherlands. The two authors use the model to explain the different expenditure patterns of the various Dutch local governments by the fact that differences in the composition of their electorates lead to differences in their preference structure and hence to differences in expenditure patterns. One of the most urgent and contentious issues in Europe today is, arguably, the nature of the political and economic relations between the member states of the European Community (EC) and the supra-national body embodied in the Community collective. Markose-Cherian argues that the political economy of Europe is crucially tied to the Kantian quality of end-independence of rules that coercive authorities may legitimately enforce. In the creation of a larger market order within the EC these rules can be observed to emerge from a negative selection process - rules are progressively eliminated as unjust as they canot be ‘universalised’ over a larger territory and population. The subject of the political and economic consequences of European integration is also that of the paper by Schwidrowski and Wahl. They argue that the elimination of intra-EC border controls leaves governments with four adjustment options: maintenance of the country of destination principle but replacement of border controls by adequate national or EC-wide institutions; a shift to the country of origin principle; harmonisation of tax rates and lastly, centralisation of the power of tax. These options are analysed within the context of a single-period general equilibrium model and it is argued that, if an objective of governments is to increase their size of their discretionary budgets, then, in a post-EC single market world, only tax centralisation offers this potential.