What is Constitutional Economics?

Constitutional economics refers to an economics research program that focuses on explaining the constitutional law that constraints economic activities and choices as well as political agents. When it comes to constitutional economic, people feel that the policies and rules benefit only states but restricts their citizens from exercising their economic rights. These policies also take into account the political-economic decisions' impact.

Back to:ECONOMIC ANALYSIS & MONETARY POLICY

What are the Principles of Constitutional Economics?

Constitutional economics investigates the conditions of the economy. It looks at how they are structured and constrained within the framework of the states' constitution. Since the rules limit the type of activities business and individuals can legally engage in, governments use its principles to estimate how the economic system and a countries' economy are growing. Note that constitutional economics focuses its studies on how legal frameworks and influencing and impacting economic development. For this reason, the economic tool is commonly used in countries whose political systems keep on changing and also in developing countries. 

The Origin of Constitutional Economics 

Economic analysts believe that constitutional economics emerged from the public choice theory in the 19th century, and focuses on how economic tools shape and influence political behavior. Richard McKenzie, a U.S. Economist, came up with constitutional economics term to purposely make it a discussion topic at a conference that took place in Washington D.C. McKenzies neologism was later adopted by an economist James Buchanan making the concept a new academic sub-discipline name. Buchanans work regarding this sub-discipline saw him get a Nobel Memorial Prize in the field of economics in 1986. He was awarded the Nobel Prize to recognize his efforts of developing the constitutional and contractual basis for making decisions as far as economy and politics are concerned. 

Why Constitutional Economics is Important? 

Constitutional economics is a practical approach that uses economic tools to address matters to do with the constitution. Note that every nations main concern is to ensure that there is an appropriate sharing of financial and national resources. A legal way of addressing this problem lies within the constitutional economics scope. In other words, it is the legal duty of constitutional economics to ensure that there is the proper allocation of financial and national economic resources. 

Positive Constitutional Economics 

Constitutional economics has unique tools due to the program of natures cross-disciplinary. The constitutional economics main positive tools analyze the following elements: It examines how some of the constitutional rules came into existence and factors that led to their development through combined individuals' inputs. It assesses how distinguishable rules are between collective and individual factors. It analyzes the possibilities for further changes in rules or constitution. For instance, it looks at any proposed change subject to economic scrutiny, including the effect they are likely to have on equity and efficiency. Lastly, it examines the economic effects that come as a result of the modified or developed change to rules.