[Handbook of Public Economics] Volume 3 || Political Economics and Public Finance**We thank a number of colleagues – especially Alan Auerbach, David Baron, Tim Besley, Francesco Daveri, Avinash Dixit, and Gerard Roland – and Ph.D. students – especially Gisela Waisman – for comments on earlier drafts. Christina Lönnblad and Alessandra Startari provided editorial assistance. The Bank of Sweden Tercentenary Foundation, the European Commission (a TMR-Grant), and Bocconi University supported the underlying research.