Public Economics and Policy

This article tackles the issue of comprehensive state budget reform. With structural deficits rampant, reform is needed to maintain the current level of programs that states and localities now provide, but cannot support over time with current revenue policies. Recent “reforms” have mainly focused on cutting both spending and taxes. Nonetheless, it is believed that people want their services and will vote to pay for them, if given that option. The article notes that there have been very few successful state tax reforms in recent years. But modernization of tax systems is needed to alleviate structural deficits. Part of the problem is institutional myopia: improved multiyear budgeting can warn policymakers when proposed actions are likely to create budget problems over the long term.

Over the last decade, observers of state and local finances have been alarmed over an emerging picture of long-term, structural imbalances. This article examines the concept of fiscal sustainability in several formulations and explains that it essentially means limiting expenditure commitments to those that can be met by available revenue streams. It investigates why fiscal sustainability in actual practice, however it might be measured in theory, has fallen into disrepair. The usual lineup of budget-busting culprits is next examined, with the proliferation of entitlement programs standing at the head of the line. Over the past four decades, state and local budget increases reflected the strength of the economy during an unprecedented run of prosperity. Meanwhile, the array of entitlement programs that drove spending was increasingly shaped by political, demographic, and institutional forces, each with its own clientele of beneficiaries. That has made adjustments more difficult when revenues do not keep pace with spending patterns.

This article deals with the administration of trade policy. It examines the individuals, ideas, and institutions that shape the trade regulation process. It focuses on the rules-based global trading system (World Trade Organization) and how the United States and other leading nations implement their obligations. It also provides readers with extensive bibliographical information, so that they can learn more about technical aspects of this broad subject.

This introductory chapter of the second volume of the Handbook discusses Africa’s changing economic policy and institutional frameworks, and presents the ways forward. It starts with a chronicle of the rise and fall of the main economic strategies adopted by most African countries after independence, and highlights their rationale and shortcomings. It then draws some lessons to be learned from failures and successes, and stresses the inappropriate tendency of African policymakers to take as reference models the most advanced economies and try to replicate their strategies and policies mimetically. It argues that economic policy in developing countries be primarily conceived as an exercise of strategic selection, and concludes by insisting on the need for humility in the quest for relevant knowledge.

A group of individuals faces the choice of an alternative out of a set of alternatives. Each member of the group holds an opinion regarding the most suitable (best) alternative for which he or she votes. In this setting, the individual votes are based on their decisional competencies, which hinge on the information to which they are exposed and on their ability to make use of that information. The main question is how to translate the group members’ voting profile to a single collective choice. This chapter studies different aspects of this question in the context of binary voting where the group faces only two alternatives. The selection of an appropriate aggregation rule is a central issue in the fields of social choice, public choice, voting theory, and collective decision making. Since the votes are based on the individual competencies, the applied aggregation rule should take into account not only the voting profile but also the competency profile. In fact, it should also take into consideration any other relevant environmental information such as the asymmetry between the feasible alternatives, the dependence between individual votes, decision-making costs, and the available past record of the voters’ decisions. The chapter focuses on the clarification of the relationship between the performance of binary aggregation rules and the relevant variables and parameters. This has direct normative implications regarding the desirable mode of collective decision making and, in particular, regarding the desirable aggregation rule and the size and the composition of the decision-making body.

Although agri-environmental programs have a long history in the United States and the European Union, such programs began to play a larger role in federal farm policies in the 1980s, in part due to greater concern about environmental damage from agricultural production. Both regions rely primarily on a mixture of three types of policy mechanisms to address agri-environmental issues: voluntary incentive-based programs, regulatory programs, and cross-compliance programs. This chapter provides an overview and comparison of EU and US agri-environmental programs. It then reviews what is known about the environmental and land use impacts of these programs. The chapter also discusses US and EU data sources that are key to analysis of agri-environmental programs and their land use impacts.

This article attempts to provide in a succinct way a road map for those wandering into the territory of agricultural policy and trade. It begins with a brief discussion of the linkages between domestic farm policies and trade policies and the implications of those linkages for world markets. The second section deals explicitly with the treatment of agriculture within the GATT and later the WTO, and considers the significance of the current Doha Round for improving trade rules and lowering protection. A third section considers the situation with respect to regional and bilateral trade agreements, where agriculture has been a reluctant player but has over time been influenced significantly by this trend toward regional solutions to trade problems. A final section gives some indication of where the trade policies and trade rules in agriculture may be heading.

In recent years, there is a growing use of algorithmic law enforcement by online intermediaries. Algorithmic enforcement by private intermediaries is located at the interface between public law and private ordering. It often reflects risk management and commercial interests of online intermediaries, effectively converging law enforcement and adjudication powers, at the hands of a small number of mega platforms. At the same time, algorithmic governance also plays a critical role in shaping access to online content and facilitating public discourse. Yet, online intermediaries are hardly held accountable for algorithmic enforcement, even though they may reach erroneous decisions. Developing proper accountability mechanisms is hence vital to create a check on algorithmic enforcement. Accordingly, relying on lessons drawn from algorithmic copyright enforcement by online intermediaries, this chapter demonstrates the accountability deficiencies in algorithmic copyright enforcement; maps the barriers for algorithmic accountability and discusses various strategies for enhancing accountability in algorithmic governance.

Democratic government requires the participation of its citizens, but Downs shows that it is not in the self-interest of individuals to vote, or acquire political information. This chapter reviews the theoretical and empirical support for the three explanations for political participation: civic duty, expressive benefit, and altruism. The preponderance of evidence supports the civic duty and altruistic explanations for why people vote. But the civic duty explanation does not readily extend to the acquisition of political information, campaign contributions, or contributions to public interest groups. Additionally, neither civic duty nor expressive identification offers an explanation of why turnout increases in close elections or for strategic voting. Altruism incorporates probabilities in the determination of expected benefits from political participation and hence easily explains these phenomena. The preponderance of evidence, as indicated in this chapter, now favors the altruistic explanation for the different types of political participation.

Although ancient Greece has long fascinated scholars, only recently have public-choice models and social science methods been applied in an effort to understand the unique political institutions for which Greece is so famous. This emerging research provides new insights into Greek history and, more generally, into the nature of democracy, autocracy, and institutional development. In this chapter, we will review public choice-related literature on the emergence of democracy in ancient Greece, on why all of ancient Greece was so anomalously democratic, and on why some Greek poleis were more democratic than others. We will finish by discussing the institutional underpinnings of ancient Greek democracy and ancient Greek tyranny, both of which were peculiarly Greek inventions.

This chapter presents and analyzes Brazil’s competition policy on merger control and the abuse of market power. Its role as an important Brazilian public policy derives from a combination of three factors: historical evolution, legal framework, and institution building. The chapter provides an analysis of the evolution of its main agency, the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica, CADE), while focusing on the control of cartels and mergers. The chapter further discusses institution building over the years surrounding the practice of competition law. Current practice and challenges in this are also discussed in the chapter.

Selectorate theory explains variation in political leaders’ tenure in office. More specifically, it explains why leaders who produce “good” policies stay in office for short periods of time while leaders who deliver “bad” policy can hold on to power for decades. This chapter presents an overview of selectorate theory, discusses the political institutions that lie at the center of it, including the selectorate and the winning coalition, and elaborates on the place that authoritarian governance has in it. In particular, the chapter uses selectorate theory to analyze autocracies and explains why autocratic leaders implement different sets of policies to obtain and keep the political support necessary to maximize tenure in office.

The idea of different kinds of dictatorships can be traced back to Aristotle. In contemporary thinking, three classifications are common: tinpot vs. totalitarian, personal/military/single-party or civilian/military/monarchy, and short vs. long time horizon. This chapter argues that classification is useful if it can be theoretically grounded, the types can be distinguished empirically, and especially if they behave differently. It concludes with an analysis of seemingly “unclassifiable” regimes such as Chinese totalitarian capitalism, Putin’s Russia, and North Korea.

This article aims to provide a stand-alone introduction to the Association of Southeast Asian Nations (ASEAN) economies, and traces ASEAN's evolution with a focus on its programs of economic integration. It also evaluates its past performance and, based on this, examines prospects for its future. The article is organized as follows. Section 2 provides an overview of the ten economies and the development of ASEAN as an institution. Section 3 examines ASEAN economic cooperation and integration with reference to merchandise trade, which was the principal focus of initiatives for the first quarter century. Section 4 then investigates a range of “trade plus” measures, including efforts to develop a broader range of closer economic relations both within and beyond the region, against the backdrop of expanded membership, the Asian financial crisis, the rise of China, and rapidly evolving regional commercial architecture. Concluding observations are presented in Section 5.

This article attempts to identify treatments of corruption that draw on characteristics of underdevelopment either as causes or as consequences. There is a very small amount of literature (both empirical and theoretical) on corruption in the Indian context. A primary reason for the lack of empirical work is the unavailability of data: Both parties typically benefit from corruption, and, therefore, neither has an incentive to report it. The article looks at three aspects of government corruption in developing countries, and in India in particular: red tape, rent-seeking, and the abundance of intermediaries (such as middlemen). The article argues that if wasteful red tape is specifically a characteristic of public provision (not private), then provision should be privatized, as suggested by the “efficient corruption” literature. The article emphasizes that there is very little work on intermediation (and the role of intermediaries) in corruption, an analysis of which is necessary to understand the structure of corruption markets, especially in the Indian context.

State government R&D expenditures play a critical role in supporting innovation in the United States. This chapter discusses the growing role of US state governments in supporting R&D activity, paying particular attention to a small business innovation program in North Carolina designed to complement the federal Small Business Innovation Research (SBIR) program. The chapter first provides an overview of the literature on state science and technology policies that encourage innovation, competitiveness, and economic development at the state level. It then reviews complementary federal and state government policies aiming to improve the success rate of the SBIR program, with particular attention to the One North Carolina Small Business Program. It discusses the objectives of the state policy and provides results of a program assessment, which indicate that the state matching program meets the objectives of the policy and provides positive spillover effects to North Carolina’s economy.

This article reviews commercial policies in Australia, examining both long-term trends and recent developments. Australia is fortunate in having time series that are long and of excellent quality. Indeed, they are probably as good as those available in any other country. These enable analysists to track changes in commercial policies in detail and to describe the distribution of the rates of assistance across industries. The review given in this article covers trade in services as well as trade in goods and the international movement of capital and labor, and considers the style of policy-making.