The theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth. Much of the literature focuses on the efficiency aspects of a decentralized provision of public services, but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. In contrast, some authors argue that decentralization increases corruption and government inefficiency, and thus may diminish growth. Given this theoretical ambiguity, several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades. We review and conduct a meta-analysis of this empirical literature. Based on our analysis, we point out open questions and discuss possible ways to answer them.
Formal fiscal rules have been introduced in many countries throughout the world. While most studies focus on the intra-jurisdictional effects of fiscal rules, vertical effects on the finances of other levels of government have yet to be explored thoroughly. This paper investigates the influence of Swiss cantonal debt brakes on municipal finances during the years 1980‐2011 by examining aggregated and disaggregated local data. A Difference‐in‐Differences estimation (two‐way fixed effects) provides little evidence that budget constraints at the cantonal level affect average municipal finances and fiscal decentralization.
Recently, political economists have started to apply behavioral economics insights to the study of political processes, thereby re-establishing a unified methodology. This paper surveys the current state of the emerging field of “behavioral political economy” and considers the scope for further research.
This paper argues that F.A. Hayek anticipated the notion of ‘recursive utility’ and analytically reconstructs his informal exposition of the optimal saving process. The scope of analysis is restricted to Hayek’s largely unrecognised contribution in Utility Analysis and Interest in 1936, restated as chapters 17 and 18 in The Pure Theory of Capital, first published in 1941. It is shown that Hayek characterised efficient dynamic choice as an infinite series of two-period optimality conditions by transforming an infinite-horizon optimisation problem into a perpetual confrontation of current and prospective utility, that he hinted at the axiomatic base of stationary and weakly separable dynamic preferences, and that he endogenised the subjective discount rate to substantiate his claim that the interest-rate path in a perfect-foresight equilibrium is unidirectionally determined by the marginal productivity of investment (and not by thrift). Hayek’s vision of dynamic social efficiency and dynamic equilibrium is completely characterised.
The Austrian School of Economics is an intellectual tradition in economics and political economy dating back to Carl Menger in the late-19th century. Menger stressed the subjective nature of value in the individual decision calculus. This school of economic thinking spread outside of Austria to the rest of Europe and the United States in the early-20th century and continued to develop and gain followers, establishing itself as a major stream of heterodox economics.
The Oxford Handbook of Austrian Economics provides an overview of this school and its theories.
Joseph A. Schumpeter and Ludwig von Mises were both Austrian-born economists, both were students of Böhm-Bawerk and von Wieser, yet whether they both may be classified as ‘Austrian economists’ is a controversial issue. This paper takes a closer look at the mixture of commonalities and disagreements in their writings that have given rise to the ambivalent assessments of their ‘Austrian’ credentials.
in: José Colen/Elisabeth Dutartre-Michaut (Hrsg.), The Companion to Raymond Aron, New York 2015, 31-44. Go to the e-book.
Robert Sugden has recently elaborated upon the case for a normative standard of freedom as “opportunity” that is supposed to cope with the problem of how to realign normative economics – with its traditional rational choice orientation – with behavioral economics. His approach however lacks psychological substance.