Political Economics II
Bocconi University, Spring 2008
Vincenzo Galasso
The main textbook for the course is T. Persson and G. Tabellini (2000), Political Economics: Explaining Economic Policy, MIT Press, paperback edition (PT). Other readings are indicated below (a * denotes required readings).
L1: Introduction. Credibility and capital taxation
(*) PT (2000), Ch 1, Ch. 15 (sections 1-3), Ch. 12 (sections 1-2)
(*) Tabellini (2004), “Finn Kydland and Edward Prescott's contribution to the theory of macroeconomic policy”,forthcoming inThe Scandinavian Journal of Economics
(available at Tabellini’s website,
then select the paper)
Calvo (1988), “Servicing the public debt: the role of expectations”, American Economic Review 78:647-61
Morris and Shin (2003), "Global Games: Theory and Applications", in Advances in Economics and Econometrics, the Eighth World Congress (edited by M. Dewatripont, L. Hansen andS. Turnovsky), Cambridge University Press.
L2: Reputation
(*) PT (2000), Ch 11, 12.
(*) Chari, V.V., and P. Kehoe (1990) “Sustainable Plans”, Journal of Political Economy
Krusell, P., V. Quadrini, and J.V Rios-Rull(1997), “Politico-Economic Equilibrium and Economic Growth”, Journal of Economic Dynamics and Control.
Fischer, S. (1980) “Dynamic Inconsistency, Cooperation, and the Benevolent Dissembling Government”, Journal of Economic Dynamics and Control.
Kotlikoff, L.J., Persson, T., and Svensson, L.E.O. (1988) “Social Contract as Assets: A Possible Solution to the Time-Consistency Problem.” American Economic Review.
Problem set 1
L3:Welfare State: Intragenerational Redistribution
(*) PT (2000), Ch. 6.1
(*) Meltzer, A., and S. Richard, (1981) “A Rational Theory of the Size of Government,” Journal of Political Economy, 89, 914-927.
Austen-Smith, D. (2000), “Redistributing Income under Proportional Representation”, Journal of Political Economy, 108, 1235-1269.
Galasso, V. (2003), “Redistribution and Fairness: A Note”, European Journal of Political Economy, 19, 885-892.
Krusell, P., and J.V. Rios Rull (1999), “On the Size of the US Government: Political Economy in the Neoclassical Growth Model”, American Economic Review, 89, 1156-1181.
Lindert, P. (1996), “What Limits Social Spending?” Explorations in Economic History, 33, 1-34.
Perotti, R. (1996), “Growth, Income Distribution and Democracy: What the data say”, Journal of Economic Growth, 1, 149-188.
L4: Welfare State:Intergenerational Redistribution
(*) Galasso, V. and P. Profeta (2002), “The political economy of social security: A survey”, European Journal of Political Economy, 18, 1-29.
(*) PT (2000) Ch. 6.2
Boldrin, M. and A. Rustichini (2000) “Equilibrium with Social Security”, Review of Economic Dynamics, 3, 41-78.
Browning, E. (1975), “Why the Social Insurance Budget is Too Large in a Democracy”, Economic Inquiry, 13, 373-388.
Cooley T.F., and J. Soares, (1999) “A positive theory of social security based on reputation” Journal of Political Economy, 107, 373-388.
Mulligan, C.B., Sala-i-Martin, X., (1999) “Gerontocracy, retirement and social security” NBER working paper #7117.
Tabellini, G., (2000). “A positive theory of social security”. Scandinavian Journal of Economics, 102, 523-545.
Problem set 2
L5: Welfare State:Future of Social Security, Quantitative Politico-Economic Models
(*)Galasso, V. and P. Profeta (2004) “Lessons for an Aging Society: the Political Sustainability of Social Security Systems”,Economic Policy, 63-115.
(*) Boeri, T., A. Borsch-Supan, G. Tabellini (2002) “Would you like to shrink the Welfare State? The Opinions of European Citizens.” American Economic Review, 92, 396-401.
Bohn, H., (1999) “Will social security and medicare remain viable as the U.S. population is aging?” Carnegie Rochester Conference Series on Public Policy, 50, 1-53.
Conesa, J.C., Kruger, D., (1999) “Social security reform with heterogeneous agents” Review of Economic Dynamics, 2, 757-795.
Cooley T.F., Soares, J., (1999). “Privatizing social security” Review of Economic Dynamics, 2, 731-755.
Galasso V. (1999) “The US social security system: what does political sustainability imply?” Review of Economic Dynamics, 2, 698-730.
L6: Welfare State:Multidimensional Issues
(*) Shepsle, K. (1979) “Institutional Arrangements and Equilibrium in Multidimensional Voting Models”, American Journal of Political Science, 23, 27-59.
(*) Austen-Smith, D., and M. Wallerstein, (2003) “Redistribution in Divided Society” Center for Mathematical Studies in Economics and Management Science DP1362available at
Besley, T., and S. Coate (1997) “An Economic Model of Representative Democracy”, Quarterly Journal of Economics, 112, 85-114.
Osborne, M., and A. Slivinski, (1996) “A Model of Political Competition with Citizen-Candidates”, Quarterly Journal of Economics, 111, 65-96.
Roemer, J. (1999) “The Democratic Political Economy of Progressive Income Taxation”, Econometrica, 67, 1-19.
L7:Welfare State: An Integrated Look at the Welfare State I
(*) J.I. Conde Ruiz and V. Galasso (2003) “Early Retirement”, Review of Economic Dynamics, 6, 12-36.
(*) J.I. Conde Ruiz and V. Galasso (2003) “Macroeconomics of Early Retirement”, Journal of Public Economics, 88, 1849-1869.
J.I. Conde Ruiz and V. Galasso (2005) “Positive Arithmetic of the Welfare State”, Journal of Public Economics.
J.I. Conde-Ruiz and P. Profeta (2002) “What Social Security: Bismarkian or Beveridgean?”, Universitat Pompeu Fabra working paper 633 available at
Hassler, J., Rodrigugez Mora, J.V., Storesletten, K., and Zilibotti, F. (2003), “The Survival of the Welfare State”, American Economic Review, 93, 87-112.
P. Profeta (2002) “Retirement and Social Security in a Probabilistic Voting Model”, International Tax and Public Finance, 9, 331-348.
L8. Welfare State: Labor Market Institutions
(*) PT (2000), Ch 6.4.
(*) T. Boeri., J.I. Conde Ruiz and V. Galasso (2004) “Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection”, CEPR Discussion Paper N.4711
Blanchard, O. and Tirole (2004) “The design of unemployment insurance and employment protection” MIT Department of Economics Working Paper No. 04-15. available at
T. Boeri, J.I. Conde Ruiz, and V. Galasso (2003) “Protecting against Labor Market Risk: Firing Costs or Unemployment Insurance?”, CEPR Discussion Paper N. 3990
Saint Paul, G. (1996) “Exploring the Political Economy of Labor Market Institutions”, Economic Policy, 23, 265-315.
Saint Paul, G. (2000) “The Political Economy of Labor Market Institutions” OxfordUniversity Press.
Wright, R., (1986) “The Redistributive Roles of Unemployment Insurance and the Dynamics of Voting”, Journal of Public Economics, 31, 377-399.
Problem set 3
L9 Public Debt
(*) PT (2000), Chpt. 13
(*) Alesina, A. and G. Tabellini (2005) “Why is fiscal policy often procyclical”?, mimeo, IGIER
Fernandez and Rodrik, Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty, American Economic Review, 1991
L10. Growth and redistribution
(*) PT (2000), Ch 14.
Alesina, A., and D. Rodrik (1994) “Distributive Politics and Economic Growth”, Quarterly Journal of Economics
(*) Perotti, R. (1996) “Growth, Income Distribution and Democracy: What the Data Say”, Journal of Economic Growth.
Krusell, P., V. Quadrini, and J.V Rios-Rull(1997), “Politico-Economic Equilibrium and Economic Growth”, Journal of Economic Dynamics and Control.
Persson, T., and G. Tabellini (1994) “Is Inequality Harmful for Growth?”, American Economic Review.
(*) Banhabib, J., and A. Rustichini (1996) “Social Conflict and Growth”, Journal of Economic Growth.
Saint Paul, G., and T. Verdier (1996) “Inequality, Redistribution and Growth: A Challenge to the Conventional Political Economy Approach”, European Economic Review.
Banhabib, J., and Adam Przeworski(2004)“The Political Economy of Redistribution under Democracy” forthcoming Economic Theory available at
Benabou, R., (2005) “Inequality, Technology, and the Social Contract”, forthcoming in Handbook of Economic Growth, P. Aghion and S. Durlauf, eds., North-Holland.
L11. Growth and Economic Development I (VG)
(*)Acemoglu, D., S. Johnson and J. Robinson (2001) “The Colonial origins of Comparative Development: An Empirical Investigation” American Economic Review, 91: 1369-1401.
(*) Acemoglu, D. and J. Robinson (2000) “Political Losers as a Barrier to Economic Development” American Economic Review Papers and Proceedings, 90: 126-130.
(*) Acemoglu, D. and J. Robinson (2002) “Economic Backwardness in Political Perspective” NBER wp 8831
A. Shleifer, and R. Visnhy (1992) “Corruption” Quarterly Journal of Economics, 108: 599-618.
Paulo Mauro (1995) “Corruption and Growth” Quarterly Journal of Economics, 110: 681-713.
L12. Growth and Economic Development II
(*) Acemoglu, D. and J. Robinson (2001) “A Theory of Political Transition” American Economic Review, 91: 938-963.
Acemoglu, D. and J. Robinson (2000) “Why did the west extend the franchise? Growth, Inequality and Democracy in Historical Perspective” Quarterly Journal of Economics, 115: 1167-1199.
Lizzeri, A. and N. Persico (2004) “Why did the elites extend the suffrage? Democracy and the scope of the government” Quarterly Journal of Economics, 119: 707-765.
Problem set 4