Public Economics and Political Economy

Public Economics studies all aspects of the intervention of governments in the economy. It provides a framework for analyzing whether or not public intervention in the market is needed and to what extent. Aspects that are currently covered by Public Economics are taxation, publicly provided insurance, public goods, public pensions, publicly provided health care, and public education. Political Economy lies on the boundary between Political Science and Economics: like Political Science it is interested in issues of Collective choice, Conflict and Institutions; like Economics, it focuses on outcomes rather than on processes. It is concerned on how the political environment (political system –democracy, dictatorship–, type of regime –presidential, parliamentary–, etc.) affects economic outcomes (size and form of redistribution programmes, extent and type of public goods provision, burden of taxation across different tax bases, size of deficit and debt, etc.). The main questions it deals with are: How are collective decisions made? and How do different “rules of the game” (institutions) affect the allocation of resources? Methodologically, it models the government (politicianas and bureaucrats) as an organisation of rational agents (away from the simplistic view of the government as a benevolent central planner that “fixes” market failures) whose interactions with each other and with –also rational– citizens are analysed using game theory.