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Alberto Alesina: The Science of Using Political Economy Concepts to Explain the Macroeconomic Landscape

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Abstract

Alberto Alesina is distinguished for having introduced, or more properly re-introduced, political economy considerations into macroeconomic policy analysis. His seminal contributions to the problems of fiscal consolidation and the optimal size and number of nations (or the possibility that nations or economic unions might find it in their interest to break-up) are as relevant today as ever. They are reviewed here, and set in a debt targeting framework that allows them to be deployed to maximum advantage.

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Notes

  1. Extended by others to include endogenous voting models: Clark and Hallerberg (2000); Demertzis et al. (2004).

  2. Recent work covers the economics of families, fairness and redistribution, women’s issues, ethnic diversity.

  3. A full set of references are given at the end of this paper

  4. See Auerbach and Gorodnichenko (2012). There are many qualifications: the multipliers vary with the model and country studied (Hall 2009); die out over time (Blanchard and Perotti 2002); are lower if spending is permanent and not reversed (Corsetti et al. 2010; Coenen et al. 2012); are larger in recessions (Christiano et al. 2011, Auerbach and Gorodnichenko 2012). Discretionary fiscal multipliers are stronger if the automatic elements are stripped out (Perotti 2012; Bernoth et al. 2012). Blanchard and Perotti (2002) find the tax multipliers to be more effective.

  5. See Cogan et al. (2010) and Coenen et al. (2012). This appears to be a robust result across many different types of models.

  6. See von Hagen et al. (2002) for an example

  7. See Alesina and Perotti (1997a, b), Lane and Perotti (1998), or von Hagen et al. (2002).

  8. Martin Wolf (Financial Times, April 10, 2012), argues that the balance of payments is fundamental to any understanding of the present crisis. Alessandrini et al. (2012) establish this proposition formally.

  9. Bokan and Hughes Hallett (2008) show that if employment is the objective, labour market deregulation is the most effective instrument if the product markets are competitive, but market liberalization otherwise.

  10. This is not a new idea. Several authors [Alesina and Perotti 1997a, b; Lane and Perotti 1998 for example] noted that reductions in wage and non-wage costs have Ricardian, or non-Keynesian, credibility effects in the 1980s–1990s.

  11. This relationship simply says that policymakers make little effort to raise a primary surplus at very low levels of debt, and find they are unable to do so (or that the political consequences of attempting to do so are too severe) at higher levels of debt – a situation often referred to as fiscal fatigue or the existence of a fiscal limit.

  12. This example is prompted by Desmet et al’s (2011) analysis of the forces behind Yugoslavia’s break-up.

References

Papers by Alberto Alesina consulted for this review

  • Alesina, A., & Giavazzi, F. (2012). “‘How’ is as important as ‘how much’”, VoxEU, VoxEU.org, 3 April 2012.

  • Alesina, A., & Perotti, R. (1997a). Fiscal adjustments in OECD countries: composition and macroeconomic effects. IMF Staff Papers, 44(3), 297–329.

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  • Alesina, A., & Perotti, R. (1997b). The welfare state and competitiveness. American Economic Review, 87(5), 921–939.

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Other references

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Further reading

  • Alesina, A. (2003). The size of countries: does it matter? Journal of the European Economic Association, 1(2–3), 301–316.

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  • Alesina, A., & Ardagna, S. (1998). Tales of fiscal adjustments. Economic Policy, 27, 489–545.

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  • Alesina, A., & Ardagna, S. (2010). Large changes in fiscal policy: taxes versus spending. Tax Policy and the Economy, 24, 35–68.

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  • Alesina, A., & Perotti, R. (1998). Economic risk and political risk in fiscal unions, Economic Journal, 108(449), 989–1009.

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  • Alesina, A., & Spolaore, E. (1997). On the number and size of nations. Quarterly Journal of Economics, 112(4), 1027–1056.

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  • Alesina, A., & Tabellini, G. (1990). A positive theory of fiscal deficits and government debt. Review of Economic Studies, 57(3), 403–414.

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  • Alesina, A., & Wacziarg, R. (1998). Openness, country size and the government. Journal of Public Economics, 69(3), 305–322.

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  • Alesina, A., Perotti, R., & Tavares, J. (1998). The political economy of fiscal adjustments. Brookings Papers on Economic Activity, Spring, 197–266.

  • Alesina, A., Spolaore, E., & Wacziarg, R. (2000). Economic integration and political disintegration. American Economic Review, 90(5), 1276–1296.

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  • Alesina, A., Devleeschauwer, A., Easterly, W., Kurlat, S., & Wacziarg, R. (2003). Fractionalization. Journal of Economic Growth, 8(3), 155–194.

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Authors and Affiliations

  1. University of St Andrews, St Andrews, Scotland, UK

    Andrew Hughes Hallett

  2. George Mason University, Fairfax, VA, USA

    Andrew Hughes Hallett

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  1. Andrew Hughes Hallett
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Correspondence to Andrew Hughes Hallett.

Additional information

This paper is a mildly expanded version of an address given to the Atlantic Economic Association’s biannual conference in Istanbul, March 28–31, 2012. Helpful comments were made by Gordon Brady and Alberto Alesina – without whom I would have been, literally, at a loss for words.

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Hughes Hallett, A. Alberto Alesina: The Science of Using Political Economy Concepts to Explain the Macroeconomic Landscape. Atl Econ J 40, 351–365 (2012). https://doi.org/10.1007/s11293-012-9341-3

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