The new political macroeconomics

Introduction: Political Distortions and Macroeconomic
Performance
The relationship between the economy and the political system has always
attracted the interest of economists since it is obvious that politics will
influence the choice of economic policies and consequently economic performance.
During the last quarter of the twentieth century research into the
various forms of interaction between politics and macroeconomics has become
a major growth area, giving rise to a field known as ‘the new political
macroeconomics’, a research area which has developed at the interface of
macroeconomics, social choice theory and game theory. This burgeoning
field makes specific use of the modern technical apparatus of economic
analysis to investigate numerous key public policy issues. Of particular interest
to macroeconomists is the influence that the interaction of political and
economic factors has on such issues as business cycles, inflation, unemployment,
the conduct and implementation of stabilization policies, the relationship
between dictatorship, democracy, inequality and economic growth, instability
and conflict, the origin of persistent budget deficits, international integration
and the size of nations. Major contributions to this field of activity, both in
terms of theoretical analysis and empirical investigation, have come from the
research of economists such as Daron Acemoglu, Alberto Alesina, Alan Drazen,
Bruno Frey, Douglass Hibbs, William Nordhaus, Douglass North, Mancur
Olson, Kenneth Rogoff, Fredrich Schneider, and Andrei Shleifer (see Willett,
1988; Persson and Tabellini, 1990; Alesina and Rosenthal, 1995; Keech,
1995; Alesina and Roubini with Cohen, 1997; Drazen, 2000a, 2000b; Gartner,
2000; Olson, 2000; Hibbs, 2001; Besley and Case, 2003; Acemoglu and
Robinson, 2005).
In this chapter we will examine some of the progress that has been made
with regard to the development of the ‘new political macroeconomics’.