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The chapter is organized as follows. The first section briefly reviews and critiques the literature on trade and government spending. The second section examines the empirical determinants of individual support for protectionism. The results show that lesser educated individuals, unemployed individuals, and individuals employed in tradable industries, particularly import competing industries, are the strongest opponents of free trade, but unemployment insurance and, to a lesser extent, other government programs can moderate their opposition. There is some evidence that active labor market spending is counterproductive in the sense that these programs lower support for free trade among workers in tradable sectors of the economy. Based on these findings, it is argued that the macro-level relationship between trade and government spending is a conditional one. More specifically, it is argued that (1) politicians respond more strongly to surges in imports and less so to expanding trade if it is balanced or generating trade surpluses; and (2) the extent to which politicians respond to rising imports will be a function of how many workers are employed in tradable industries and the overall level of unemployment.

This chapter explores whether governments in different varieties of capitalism respond differently to common economic shocks. It is often assumed that such shocks have a homogenizing effect on government policies, but I find the opposite to be the case (using OECD data and non-linear regression techniques). In economies with training systems that emphasize specific skills (CMEs), demand for social insurance is more sensitive to adverse economic shocks than in LMEs. In turn, polities with proportional representation (PR) are more sensitive to such demands, suggesting that PR is a complement to coordinated capitalism. The chapter also includes an analysis of the conditioning effects of wage bargaining institutions on shocks to the wage distribution, and concludes with a discussion of whether an increasingly bifurcated income and risk structure may change the politics of compensation.

Chapter 2 conducts a systematic and comprehensive analysis of the left’s economic policies in Latin America. By way of defining the dependent variable of the study, this chapter first breaks down reforms into five main areas: privatizations/nationalizations; government spending; taxation; trade, financial, and monetary liberalization; and poverty alleviation. Second, it classifies countries based on the degree to which they carried out statist or pro-market policies. Third, it assesses the state of economic reforms in the region. Focusing on ten countries—eight governed by the left and two by the right as controls—Chapter 2 finds that, although remaining within the margins of a market economy, leftist governments were more likely to depart from market orthodoxy than their right-of-center counterparts, but that there is considerable variation among leftist governments’ policies. It also finds that nationalizations, taxation, and trade, financial, and monetary liberalization were the areas that experienced the most intervention in the economy.

This introductory chapter provides an overview of how political representation occurs on government spending decisions—one of the most consequential powers of government. Political representation in Congress is, in large part, about how elected officials decide how to spend federal money. While a large literature analyzes how district expenditures affect support for congressional incumbents, it remains unclear how constituents hold legislators accountable for expenditures—how constituents attribute spending to legislators, how constituents evaluate those expenditures, and how constituents reward or punish legislators for spending on projects. One reason for this lack of clarity is that constituents are unlikely to learn about the projects on their own. However, constituents' inability to track spending is not an indictment of their democratic competence. Instead, it reflects the many activities representatives perform and the subtle ways that federal expenditures occur.

The previous chapters documented and formally analyzed a variety of channels, both old and new, through which public capital may affect growth. Various extensions, mostly technical in nature, were outlined at the end of some chapters. This chapter sets out a broader research agenda on the links among public capital, growth, and human welfare. It considers the following areas: heterogeneous infrastructure assets, the political economy of government spending allocation, excludable public goods, interactions between government debt and public capital accumulation in the presence of fiscal rules, spatial and regional dimensions of public capital, infrastructure and trade, public–private partnerships, the impact of public capital on income distribution, negative externalities associated with public capital, and empirical tests of the impact of public capital on growth.

This chapter examines redistribution from the rich to the poor in the United States and Europe. It analyses macroeconomic variables on the spending side of the government budget, and specific redistributive programs. It considers the Luxembourg income study, which provides a survey of income sources for a sample of households in various countries. It argues that the poor are better treated in Europe than in the US.

This chapter focuses on the relationship between taxation and several privately produced public goods. Charity and private contributions play an important role in the economy especially for a large portion of the population. This is modeled as a ‘subscription game’, where donors give contributions to a public good — the charity. There are different motives for donating to charity. One is where the donor cares about the actual amount donated and the other is where the donor cares about the optimal recipient's consumption. Motive for donating affects the tax policy of a country. Also, many governments, especially small developing countries, attempt to reduce their fiscal deficit by reducing their spending and foreign debt levels. It is shown that consumption tax makes it more difficult to solve the budget crisis, and reducing spending is a better way of solving the budgetary problem.

This chapter discusses literature concerning optimal taxation, based on versions of the Ramsey growth model. Several economists showed that it is sub-optimal to tax capital income in the long run. This is true in the endogenous growth model studied by Lucas because a tax on income will permanently lower the growth rate of the economy and consequently welfare. However, there are several limitations to this result. These limitations are: government spending is proportional to output; precautionary saving from incomplete insurance markets exists; productive public spending that enhances private investment is present; there are liquidity constraints; and negative externalities associated with production exist. Voters in a democratic country, as discussed by Krusell, Quadrini, and Rios-Rull (1996), prefer a general income tax system over consumption tax since it tends to reduce the level of redistributive taxation.

This chapter examines the effect of government spending on private spending, unemployment, and employment, and shows that an increase in government spending never leads to a significant rise in private spending. In fact, in most cases, it leads to a significant fall. These results imply that the government spending multiplier is more likely below one rather than above one. The chapter also shows that all of the increase in employment after a positive shock to government spending is due to an increase in government employment, not private employment. These results suggest that the employment effects of government spending work through the direct hiring of workers, not stimulating the private sector to hire more workers. A commentary is also included at the end of the chapter.

This chapter examines the impact of armed conflict on the economy of mid-18th-century Britain and Ireland. Both the macro and the micro are considered, generally by calling on micro examples to illuminate, qualify, or challenge the macro picture. Factors considered include labour supply, taxation and borrowing, overseas trade, and government spending.

This chapter examines the changes in politics, social life, and trade in north India after the Rebellion of 1857. It explains that after the rebellion the Crown government began to take a more active role in public works and pushed forward the modernisation of administration, the professions and education. After 1860, the society which the government had modified was already moving along its own, slower paths of development. This chapter argues that the first force behind the growth of the commercial economy and the towns in the later nineteenth century was government spending.

Chapter 5 describes the extent to which racial and/or ethnic identity affect policy stances, and compares the responses from SSEU members with national data. The chapter provides evidence that the importance and impact of racial and ethnic identity affects political attitudes and policy beliefs dealing with social spending issues and broader immigration debates. I show that black ethnic groups within SSEU Local 371 exhibited similar attitudes toward government spending issues promoted by the union. There was even an element of racial cohesion regarding issues not promoted by the union leadership. However, black ethnics displayed compellingly distinct differences in opinion toward race-related spending issues. The results indicate that ethnicity does affect policy attitudes, but the evidence also describes a complex overlapping of identities—union, racial, and specific ethnic—when analyzing government spending issues.

In most respects, Afghanistan closely conforms to the model of a war-torn society. It exhibits all the expected features of macroeconomic decline, following the near-collapse of its political system. Government spending has fallen in all sectors except the military. Household entitlements have been correspondingly adversely affected. This chapter attempts to measure the cost of war at the macro- and mesolevel, and to assess its impact on individual households and communities. Throughout, it draws comparisons between Afghanistan's pre-war and wartime performance. To establish counterfactual points of reference, Afghanistan is compared with Nepal — which in many ways resembled Afghanistan prior to the war — and with the least-developed countries (LDCs) as a whole.

This chapter evaluates the influence of political economy, government spending, and taxation on economic performance. It examines whether the expanding welfare state and the continuing push for equality and job security are barriers to good economic performance. It argues that the trade-offs between job protection, social security, equality, and participatory democracy on the one hand, and worker productivity, economic growth, and other measures of economic performance, on the other hand, are not so stark as suggested in the burgeoning literature on policy analysis.

Given the peg to the U.S. dollar, fiscal policy is the main tool for macroeconomic stabilization in the GCC. However, fiscal multipliers could be weak in the region given the substantial leakages through remittances and imports. The chapter estimates using panel and VAR models that the short-term fiscal multipliers are between 0.2 and 0.4. The long-term fiscal multipliers would be larger, especially for capital expenditure. Fiscal policy is often pro-cyclical in oil exporting countries, but the VARs suggest that policy would have been counter-cyclical in Saudi Arabia and Oman. Overall, shocks to government spending would have contributed for 20 to 30 percent to the variance of non-oil GDP growth.

This chapter presents the guidelines for efficient taxation and debt financing. It also outlines the principles for efficient federal government spending within a federal public economy. Efficient tax policy should seek to minimize horizontal spillovers between local and provincial economies and vertical spillovers between the central and provincial and local governments. Efficient debt policy should seek to align debt payment to future benefits and control possible abuses of local borrowing via balanced-budget rules. Efficient spending focuses on the essential federal task of designing intergovernmental transfers, stressing when matching and lump-sum grants-in-aid are most appropriate to manage public goods, spillovers between states, and the provision of social insurance for differential income shocks across regions, states, or localities.

This chapter examines the size of fiscal multipliers amidst an economic recession, first estimating multipliers for a large number of Organization for Economic Cooperation and Development (OECD) countries. Second, it adapts the authors' previous methodology to use direct projections rather than the standard structural vector autoregression (SVAR) approach to estimate multipliers, to economize on degrees of freedom, and to relax the assumptions on impulse response functions imposed by the SVAR method. Third, the chapter estimates responses not only of output but also of other macroeconomic aggregates. It is shown that multipliers of government purchases are larger in a recession, and that controlling for real-time predictions of government purchases tends to increase the estimated multipliers of government spending in recession. A commentary is also included at the end of the chapter.

The chapter has three-dimensional objectives. First, it aims to explain the introduction, maturity, and subsequent decrease of Danish and Swedish social democratic economic paradigms, concentrating on the 1980s and 1990s. Topics discussed are demand and supply equilibrium, macroeconomic fundamentals, and opportunity costs in wage decisions. Secondly, the chapter gives a comprehensive analysis of the interplay between economic regulations and macro organisations integrated in financial institutions. Internalisation and technological advancement is expected to come out of the experiences of Denmark and Sweden as compared with that of the Northern European democratic countries. Lastly, the chapter hopes lessons will be learnt out of the Scandinavian experience.