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Micropolitical Dynamics and Fiscal Policy


Research objectives and content

JEL classification: Hl, E6, C6

Keywords: political economics, cabinet stability, discrete choice models


To show how institutional features of parliamentary democracies provide stability to governments, construct a dynamic stochastic discrete choice model of government participation at the single party level.

A single party is assumed to make a discrete choice regarding her participation to a government: either she can trade the government for a different one or keep it.

This discrete decision is influenced by different factors: the income received by the government re-distributive policies;

the shortage of votes necessary to pass the government proposal;
the political cost of breaking the government.

Possible insight from this model is to prove the existence of indigenous optimal stopping time for termination of governments in parliamentary democracies. The research also runs policy simulations of the effects of re-distributive policies on government duration. A further extension is to compare actual data on cross-sectional distributions of government duration with a simulated version of the model.

Training content (objective, benefit and expected impact)

By using the methods of dynamic programming it will be possible to run policy simulations out the effects of re-distributive policies on government duration; for this purpose numerical analysis will be applied through a built-in purpose program written in Matlab code. An extension of the research is dedicated to run a comparative analysis between actual data on cross-sectional distributions of government durations and the simulated versions of the model.

Methods: formal political models of structure-induced equilibrium dynamic programming, numerical analysis of policy simulations, Matlab programming language, econometric analysis of duration data. Relevance of proposal to European policies.

The research will also explore the general design of the political institutions of the EU;
in particular it will analyse how the heterogeneity of parliamentary structures will influence the fiscal adjustment processes necessary for the success of the European monetary union.

Links with industry / industrial relevance (22)


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