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Principles of political economy

An outline proposal, illustrated by application to fiscal federalism

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Abstract

As a guide to efficient social organization, neo-classical economics is deficient in two major ways. First, it uses simplifying assumptions about the decision-environment which destroy its possible relevance to an understanding of decision situations in the real world: notably in its inability to embrace the unknowability of the future and the subjectivity of human decisions. Second, it specifies the nature of policy-relevant choice in too restrictive a fashion to explain the major (constitutional and political) choice-situations inherent in any system of social organization.

A more satisfactory intellectual construct can be derived from a political economy-public choice model. This follows broadly the contractarian-liberal model developed notably by Buchanan and Brennan, but envisages a much more thoroughgoing rejection of neo-classical (Paretian) concepts.

Thenew political economy would identifyefficiency with the ability of the citizen to constrain government-as-leviathan in a context of multi-level choice. The opportunity-cost situation of citizens-as-choosers is specified by reference to their ongoing possibilities of usingvoice to change unsatisfactory institutional constraints orexit to escape their consequences.

The model is used to appraise the constitutional characteristics of fiscal federalism.

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I am indebted to the Center for Study of Public Choice, George Mason University and the Centre for Research on Federal Financial Relations, Australian National University, for the provision of facilities. Colleagues at both institutions also provided valuable advice and comment.

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Wiseman, J. Principles of political economy. Constit Polit Econ 1, 101–124 (1990). https://doi.org/10.1007/BF02393035

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  • DOI: https://doi.org/10.1007/BF02393035

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