interpreting economic time series this paper explores some of the implications for econometric practice of the principle that people s observed behavior will change when their constraints change in dynamic contexts a proper definition of people s constraints includes among them laws of motion that describe the evolution of the taxes they must pay and the prices of the goods that they buy and sell changes in agents perceptions of these laws of motion or constraints will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess until very recently received dynamic econometric practice ignored this principle the practice of dynamic econometrics should be changed so that it is consistent with the principle that people s rules of choice are influenced by their constraints this is a substantial undertaking and involves major adjustments in the ways that we formulate estimate and simulate econometric models

explaining presidential priorities the competing aspiration levels model of macrobudgetary decision making this article develops a new statistical model of trade offs among defense nondefense and fiscal policy concerns as they are reflected in the presidential budgetary process the competing aspiration levels model calm builds on crecine s 1971 great identity argument unlike most previous attempts to model presidential budgeting calm explicitly represents the interdependence of decisions about defense nondefense and totalfederal expenditures calm models this interdependence as the result of the interaction of minimal aspirations for defense and nondefense expenditures with a maximum acceptable level of expenditures from a fiscal policy standpoint statistical analyses of presidential budgets for the fiscal years from 1955 through 1980 provide strong support for the calm formulation substantively the results indicate that fiscal constraints on total expenditures have progressively weakened that the maximum acceptable expenditure level has generally exceeded the minimal expenditure aspiration level and that when a potential fiscal surplus has existed the nondefense sector has been more successful in capturing a share of this surplus than the defense sector in keeping with traditional incrementalist arguments the results indicate that previous year expenditure levels provide a relatively secure budgetary base for both the defense and nondefense sectors both sectors tend to receive their minimal aspiration levels plus a share of whatever fiscal surplus exists the analysis also indicates that the executive branch has not been as strong a direct force for budgetary growth as congress

the political economy of government domestic expenditure in the affluent democracies 1960 80 despite the large number of studies of the determination of government expenditure in the affluent democracies most students of the subject admit that we know relatively little about the complex dynamics of spending change using multiple regression analyses of changes in nonmilitary outlays over the years 1960 to 1973 and 1973 to 1980 this study attempts to remedy some of the problems in the literature by providing new tests of several old hypotheses by introducing and testing several relatively new hypotheses and by evaluating such propositions in the context of an integrated theoretical framework and of analyses that span two distinct political economic eras results suggest that the dynamics of domestic expenditure change are partially conditioned by macroeconomic and political environments of particular eras overall the self interests and ideological preferences of policymakers the institutional and extrainstitutional political action of policy relevant groups and needs for state assistance emerge as principal sources of changes in domestic expenditure

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

expectations and arms races recent empirical studies of arms races have produced two puzzling results first for several important arms races particularly the u s ussr case there appears to be no interaction arms acquisition appears to be driven only by internal factors second in several cases nations appear to be responding to the current military expenditures of their opponent this statistical result presents interpretation problems since nations do not know the current defense expenditure of their opponent at the time that they make their own military expenditure decision a number of interpretations for these results have been provided they include inappropriate model specification inappropriate operationalization of military threat and error ridden military expenditure data nevertheless the results persist and conflict with our more substantive and intuitive understanding of arms processes a process based upon expectations of current arms expenditures of the opponent is developed to deal with this puzzle in this paper several alternative expectation mechanisms are formulated and tested for a number of contemporary arms races

elections keynes bureaucracy and class explaining u s budget deficits 1961 1978 the determination of u s federal budget deficits and surpluses during a period of keynesian fiscal activism is modeled in light of relevant social science literatures rational choice emphases upon electoral manipulation of the economy and keynesian stabilization marxian emphases upon monopolization andfiscal control of labor militancy organizational decision theory emphases upon budgeting inertia and a number of additional thrusts from other literatures are supported by time series regression analyses of 1961 1978 surpluses deficits the final model is statistically well behaved analysis of so called high employment measures of discretionary surpluses deficits supports all interpretations requiring discretionary policy making but an indication of automatic stabilization emerges as well a focus upon executive policy making roles is suggested as one means to further theoretical integration of explanations of state macroeconomic policy

on the justice of decision rules which decision rules are the most efficient which are the best in terms of maximin or maximax we study these questions for the case of a group of individuals faced with a collective choice from a set of alternatives a key message from our results is that the set of optimal decision rules is well defined particularly simple and well known the class of scoring rules we provide the optimal scoring rules for the three different ideals of justice under consideration utilitarianism efficiency maximin and maximax the optimal utilitarian scoring rule depends crucially on the probability distribution of the utilities the optimal maximin respectively maximax scoring rule takes the optimal utilitarian scoring rule and applies a factor that shifts it towards negative voting respectively plurality voting

electoral cycles and budgetary growth in veterans benefit programs while many studies have generated negative findings regarding the general existence of electoral cycles in economic phenomena we have found an apparently robust electoral cycle in veterans benefits this pattern was found between 1961 and 1978 but has disappeared since then we use this case to investigate the possibility that electoral cycles might contribute to the growth of government spending using two different methods of inference we find no strong basis to conclude that such cycles cause increasing public sector growth

welfare spending in advanced industrial democracies 1950 1980 this paper addresses long standing debates over the role of demographic structure class power class based political parties and democraphic political participation in the growth of the welfare state in advance industrial democracies from 1950 to 1980 it distinguishes four theories industrialism monopoly capitalism social democratic and interest group politics and tests them using pooled cross sectional time series data for 18 nations and seven time points total social welfare spending composed primarily of social insurance benefits is dominated by the size of the aged population smaller but important effect of nonclass political variables such as voting participation and electoral competition and interaction of age with political and other variables public assistance means tested programs however are dominated by class variables although evaluation of the theories must consider the domain of programs to which each best applies the results generally favor an interest group politics theo

divided government fiscal institutions and budget deficits evidence from the states does partisan control of american state government have systematic effects on state spending and taxing levels does divided control affect the government s ability to make hard decisions do institutional rules like legal deficit carryover restrictions matter using a formal model of fiscal policy to guide empirical analysis of data covering the american states from 1968 to 1987 we conclude that 1 aggregate state budget totals are driven by different factors under democrats and republicans the net result being that democrats target spending and taxes to higher shares of state level personal income 2 divided government is less able to react to revenue shocks that lead to budget deficits particularly where different parties control each chamber of the legislature and 3 unified party governments with restricted ability to carry deficits into the next fiscal year outside the south have sharper reactions to negative revenue shocks than those without restrictions

listen to sraffa s silences a new interpretation of sraffa s production of commodities this paper argues that the received interpretation of sraffa s prices as classical natural prices that would prevail when the system is at the centre of gravitation cannot be retained it offers an alternative interpretation in which sraffa s prices are completely independent of demand considerations or the condition of equilibrium of demand and supply the requirement of the uniform rate of profits in sraffa s price equations is argued to be a logical consequence of the assumption that wages are uniform and fixed from outside the system the paper provides evidence from sraffa s published and unpublished writings to buttress its new interpretation it also provides answers to the major criticisms and questions raised against the new interpretation copyright oxford university press

mathematical models of the u s military expenditure decision making process mathematical models of the u s military expenditure decision making process are constructed estimated and analyzed each model contains four interdependent policymaking groups each group is assumed to have different goals and objectives these objectives are formalized and are assumed to be a function of actions of other policymakirg groups relevant fiscal and economic constraints expectations of actions of other policymaking groups and the perceived external threat given posited objectives and a decision calculus by which expectations are formed adaptively and partial adjustments made by the groups to their goals decision rules describing behavior are derived and estimated results suggest that policymakers do employ expectations and do make partial adjustments to operational goals

granger causality and the time series analysis of political relationships political scientists have employed causal modeling techniques for quite some time in most cases however they have relied on methods of a static cross sectional variety time series methods have been disseminated and applied but these have not been expressly causal the problem of assessing the causal character or direction of political relationships over time has not been addressed granger 1969 has suggested a notion of causality that is applicable in longitudinal analysis the study and application of granger s idea of causation now is widespread in economics and business this discussion evaluates the usefulness of applying granger causality in the study of political relationships granger s definition of causality is introduced several popular procedures for assessing granger causality are reviewed and certain problems surrounding interpretation of those empirical tests are elucidated the virtues and pitfalls of granger causal analysis then are illustrated in an analysis of an important topic in international political economy and also in a reanalysis of a recent granger causal investigation of arms races

change and stability in superpower rivalry we investigate the dynamics of superpower rivalry participants in policy debates within each state use information about expected future threats and economic costs to influence other policy actors and this process of sophisticated reaction links the security policies of these two states into a single rivalry system analysis of vector autoregression models of u s and soviet military expenditures and diplomatic hostility and u s gross national product supports the hypothesis that these policies approximate the behavior of unitary rational states capable of forming rational expectations of each other s future behavior the dynamic response of this system to a wide range of exogenous shocks or innovations reveals the underlying stability of this rivalry system the military expenditures of both states exhibit a cyclical response to innovations with a shorter u s cycle this lack of synchronization creates several problems for analysis and for policy change

leveling the playing field sincere and sophisticated players in the boston mechanism empirical and experimental evidence suggests different levels of sophistication among families in the boston public school student assignment plan we analyze the preference revelation game induced by the boston mechanism with sincere players who report their true preferences and sophisticated players who play a best response we characterize the set of nash equilibrium outcomes as the set of stable matchings of a modified economy where sincere students lose priority to sophisticated students any sophisticated student weakly prefers her assignment under the pareto dominant nash equilibrium of the boston mechanism to her assignment under the recently adopted student optimal stable mechanism jel d82 i21

u s soviet chinese relations routine reciprocity or rational expectations international relations theorists disagree about whether great power behaviors reflect bureaucratic routine or reciprocity recently some have suggested that these behaviors result from great powers rational expectations rather than from simple routine or reciprocity the debate is flawed in several respects the quasi experimental studies of great power behavior suffer from specification and measurement errors furthermore most studies of great power behavior focus exclusively on the superpowers without adequately appreciating china s role in world politics we present an improved analysis that recognizes the potential effects of chinese behavior and ameliorates the methodological flaws in existing work the results indicate that the behaviors of the united states the soviet union and china are a relatively stable mix of bureaucratic routine and reciprocity the results also indicate complex asymmetrical connections among u s soviet u s chinese and soviet chinese relations consistent with the notion of a strategic triangle

monopoly capital organized labor and military expenditures in the united states 1949 1976 in this paper we systematically assess the neo marxian view that military expenditures are used by the state as a countercyclical fiscal policy either to forestall a serious recession or to facilitate economic recovery in particular we examine the post world war ii political economic experience of the united states because the military expenditures thesis was most fully developed initially in an attempt to explain postwar american prosperity we evaluate what we term the naive model of baran and sweezy which suggests that the degree to which national output is absorbed by military spending should be dependent on aggregate economic conditions such as unemployment finding only inconsistent evidence to support the naive view we incorporate the insights of recent neo marxists especially o connor on the linkages among the monopoly corporate sector the unionized sector of labor and the state the empirical evidence appears consistent with this modified view with unemployment in the unionized sect

military keynesianism in the united states 1949 1976 disaggregating military expenditures and their determination this paper examines military expenditures in the united states 1949 1976 at a less aggregate level than was done by griffin devine and wallace assuming that distinctive and independent causal processes generate each of four subcategories that include nearly all military spending griffin devine and wallace s model can be transposed with little modification to the two most generously financed subcategories equipment and personnel however their model casts little light on the determination of spending for operations and maintenance and research and development still the level of industrial concentration emerges as an important source of spending on military research development and this fact is consistent with suggestions in galbraith s discussion of the planning sector preelection increases in military spending appear to be efficiently earmarked for increases in the pay of military personnel

u s defense spending and the soviet estimate there is a glaring and potentially important discontinuity surrounding discussions of u s defense expenditure policy making on the one hand a growing body of empirically based research questions whether the u s reacts in any significant fashion to the military expenditures of the soviet union on the other hand defense policy makers routinely justify defense increases as a response to similar increases by the soviet union the discontinuity is resolved in the context of a multistep model of the defense expenditure policy making process that incorporates a new estimate of soviet defense spending and mass public opinion once formulated the model provides answers to the following two questions 1 does the u s insofar as defense spending is concerned react to the military expenditures of the soviet union 2 if so what is the magnitude of the reaction the answers indicate that not only does the u s react to estimated soviet defense spending but that the reaction is directly responsible for a very substantial portion of the post 1978 increases in u s military expenditures

sophisticated reaction in the u s soviet arms race evidence of rational expectations because of the pervasive security rivalry between the united states and the soviet union information about the expected future behavior of the rival state proves useful to domestic political actors competing to influence budgetary allocations this article examines the hypothesis that in the aggregate this process of sophisticated reaction approximates the behavior of two unitary rational actors capable of forming rational expectations of each other s behavior this rational expectations arms race model implies that the military expenditure series of arms racers should be independent in the granger causal sense but that their residuals should be correlated contemporaneously the latter prediction is inconsistent with bureaucratic process models or alternative expectational formulations and empirical analysis of u s and soviet yearly military expenditures is provided that supports the predictions of the rear model finally some implications of this intimate linkage between the domestic policy processes of these two rival superpowers are briefly discussed

endogenous public sector budgeting to centralize or not in this paper the impact of budget size on a government s choice to centralize or decentralize the budgetary process is investigated using asymmetric information differing preferences and endogenous budgetary arrangements the central government chooses between a budgetary process that excludes the regional board centralization and one that includes the board decentralization in the determination of program budget levels it is predicted that the central government will decentralize the budgetary process at low and centralize at high overall budget levels switching from decentralization to centralization is predicted to

welfare of naive and sophisticated players in school choice two main school choice mechanisms have attracted the attention in the liter ature boston and deferred acceptance da the question arises on the ex ante welfare implications when the game is played by participants that vary in terms of their strategic sophistication abdulkadiroglu che and yasuda 2011 have shown that the chances of naive participants getting into a good school are higher under the boston mechanism than under da and some naive participants are actually better o in this note we show that these results can be extended to show that under the veil of ignorance i e students not yet knowing their utility values all naive students may prefer to adopt the boston mechanism

modeling u s budgetary and fiscal policy outcomes a disaggregated systemwide perspective this paper develops and estimates a model of u s federal budgetary outcomes that allows for considerable disaggregation across spending categories while providing through cross equation coefficient restrictions substantially more statistical power than traditional approaches we identify significant top down fiscal policy effects on budgetary allocations primarily within the defense budget budgetary responses to macroeconomic conditions are generally countercyclical although middle class entitlements appear to react procyclically to inflation political control of congress influences budgetary outcomes with democrats giving higher priority to domestic spending programs the relative rate of public sector inflation affects spending growth consistent with baumol s disease public opinion affects defense and low income entitlement spending defense spending has also been influenced by perceived soviet threat as well as the level of armed conflict there appear to be small election year effects although not of the sort predicted by political business cycle models with a few exceptions administration specific impacts are relatively small and not systematically related to the party of the president

resolving conflicting preferences in school choice the boston mechanism reconsidered the boston mechanism is among the most popular school choice pro cedures in use yet the mechanism has been criticized for its poor incentive and welfare performances which led the boston public schools to recently replace it with gale and shapley s deferred acceptance algorithm henceforth da the da elicits truthful revelation of ordinal preferences whereas the boston mechanism does not but the latter induces participants to reveal their cardinal preferences i e their relative preference intensities whereas the former does not we show that cardinal preferences matter more when families have similar ordinal preferences and schools have coarse priorities two common features of many school choice environ ments speci cally when students have the same ordinal preferences and schools have no priorities the boston mechanism pareto dominates the da in ex ante wel fare the boston mechanism may not harm but rather bene t participants who may not strategize well in the presence of school priorities the boston mechanism also tends to facilitate a greater access than the da to good schools by those lack ing priorities at those schools these results contrast with the standard view and cautions against a hasty rejection of the boston mechanism in favor of mechanisms such as the da

a sequential model of congressional appropriations while the incrementalist and externalist models of budgeting are sometimes viewed as competing interpretations they are not mutually exclusive this research tests a model incorporating both topdown and bottom up features of federal budgeting the sequential model has several features not commonly found in the empirical budgeting literature including 1 treatment of the sequential processes of budgeting 2 use of a budget constraint which incorporates top down budget influences and recognizes the interdependence of agency budgets 3 linkage of appropriations to revenues and the budget deficit and 4 application of the linear expenditure system the sequential model is tested by a set of simultaneous equations which account for a substantial portion of the variance in appropriations at each level of analysis an empirical comparison with a simple incrementalist model indicates that a model including a budget constraint and external economic and political variables provides a superior explanation of federal budgeting the pioneering study on incrementalism in federal budgeting by davis dempster and wildavsky 1966 concluded that budgetary outcomes can be characterized by a simple set of decision rules that are linear and temporally stable incrementalist theory emphasizes the importance of marginal adjustments in the previous year s budgetary base negotiation strategies of the key participants in the budgeting process congressional subcommittees omb political constituencies and the agencies and the overall stability of budgetary outcomes are also important aspects of the incrementalist view despite periodic attacks the incrementalist view and the simple linear decision rules suggested by davis dempster and wildavsky have become the standard by which other interpretations of budgetary processes are measured in a later study davis dempster and wildavsky 1974 pursued some of the shift points and anomalies of budgetary behavior by including a number of political economic and social variables in their original incrementalist models they concluded that the process that generates agency requests is highly internalized and generally little influenced by the outside world they found that in some cases 14 of 53 agencies congressional appropriations were significantly affected by at least one environmental variable but that for the most part agencies live in worlds of their own in this and other empirical studies of budgeting however environmental influences generally have been included on an ad hoc basis rather than being incorporated systematically into a theoretical framework

the illusion of choice defense and welfare in advanced industrial democracies 1948 1978 research on the tendency of governments to trade off welfare spending for defense has generated diverse and often contradictory findings this study attempts to clarify the issue of trade offs by examining expenditure patterns since 1948 for the four major na to allies united states united kingdom federal republic of germany and france when viewed from the perspective of long term trends in shares of outlays trade offs are evident when short term changes in expenditure which are more germane to the potential for one spending category to benefit at the expense of the other are studied no pattern of trade off can be detected a three equation model is estimated to control for the variety of possible determining factors of public resource allocation in none of the four nations does a pattern of trade off emerge except in periods of wartime or postwar reconstruction these findings are consistent with the ability of governments to finance new spending through either increased taxes or larger budget deficits the growing disinclination to use these methods however suggests that the potential for trade offs has perhaps reappeared in the 1980s

on the present state of the capital controversy the post war capital controversy seems to have had two distinguishable stages thanks to the unambiguous phenomena of reswitching and reverse capital deepening the first stage was conclusive in discarding from pure theory the traditional versions of neoclassical theory that relied on the notion of capital as a single quantity subsequently however when the implications of those phenomena took centre stage in the controversy together with the reformulations of the theory which intended to do away with the quantity of capital several misunderstandings prevented i shall contend decisive progress in the analysis and we entered an inconclusive phase of the discussion