On The Modelling of Politico-Economic Interdependence

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Abstract
Various analytic and simulation models designed to integrate the political and economic sectors are surveyed, stressing the interacting links going from the economy to the polity through the popularity function and in the reverse direction through the government's reaction function. Partial politico-economic models concentrate on a particular trade-off between goals, in particular between inflation and unemployment. The models of total politico-economic interdependence study the interrelationship of the economy as a whole with the polity. They are studied theoretically and by simulation techniques. Ongoing research by the authors indicates that such models can be applied empirically; as an example an already existing econometric model of the German economy is extended by an endogenous government sector.

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