20901 - POLITICAL ECONOMICS

ATTENDING AND NOT ATTENDING STUDENTS

The main course material, for both attending and non-attending students, is:

· T. PERSSON, G. TABELLINI, Political Economics, MIT Press, 2000.

The slides of the course, problem sets and additional readings are uploaded to the Bboard platform of the course.

Students attending this course should be familiar with basic microeconomics concepts, in particular with the notion of Nash Equilibrium and Subgame Perfect Nash Equilibrium, and should know how to solve unconstrained and constrained optimization problems. In particular, they should know how to use and apply the Kuhn-Tucker conditions to compute a constrained optimum.

The goal of this course is to discuss current topics in political economics. This means to study the formation of economic policy from a positive, rather than a normative, perspective. Thus, the course will address questions such as: what are the political and institutional determinants of fiscal policy and macroeconomic policy in modern democracies? How can political corruption be fought? Why are seemingly inefficient public policies preserved over time, and what can be done to overcome opposition to reform? How do voters form their political beliefs, and how is this reflected in the behavior of politicians? The course will thus train students to understand how policy decisions are made, how they can be improved, and how voters behave at the polls. This will prove helpful in the analysis and forecast of policy decisions, by market analysts or by professionals working in government or international organizations.

Most of the course will focus on political determinants of policy choices in modern democracies. Emphasis will also be given to try and explain voters’ behavior, exploiting insights from behavioral economics. We start with a review of the normative principles of optimal fiscal policy. Next, we study the determinants of redistributive programs, distinguishing between general redistributive programs, such as the European welfare states, and redistribution targeted to powerful special interests. Then we discuss corruption and more generally the conflict of interest between opportunistic politicians and the general public, asking how it shapes public policy. We then turn to the analysis of how public policy (in its various forms) is shaped by political institutions, applying insights from comparative politics to the analysis of public policy. Finally, we discuss political influences on inter-temporal policies, such as government debt and investments in state capacity. The final part of the course will be devoted to studying voters’ behavior and the rise of populism.

At the end of the course student will be able to...

· Understand how policy decisions are made and how they can be improved

· Understand ongoing political and economic changes in advanced democracies and in developing countries

· Understand the properties of different political institutions and how they influence public policy

· Understand systematic biases in public opinion and political beliefs

This will prove helpful in the analysis and forecast of public policies, by market analysts or by professionals working in government or international organizations. It will also enable students to read and understand, and critically evaluate the advanced literature on economic development and public policy

At the end of the course student will be able to...

· Forecast policy decisions in complex political environments.

· Understand ongoing political and economic changes in advanced democracies and emerging countries.

· Understand why unsustainable policies remain in place for too long.

· Understand which specific features of political institutions may lead to more or less provision of public goods, more or less redistribution, more or less political corruption.

· Understand how organized special interests influence public policies.

• Face-to-face lectures
• Individual assignments

Individual assignments, to be discussed in class (about 2 written assignments).

Students are encouraged to take an active part in class discussion, sharing their insights and bringing their own views.