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Counterfiscal policies and partisan politics: evidence from industrialized countries

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Abstract:

According to partisan theories of macroeconomic policy, left-wing parties are more concerned with unemployment while right-wing parties tend to weigh the costs of inflation higher. An implication of partisan theories is that partisan policy differences should depend on the state of the economy, with left-wing governments conducting relatively more expansive policies during recessions. We test whether left-wing governments are more favourably inclined towards countercyclical fiscal policies than their right-wing counterparts using a panel data set of 18 OECD countries from 1980 to 1992. The results are supportive of partisan theories. The structural deficit is significantly higher under left-wing governments when unemployment is high or rising while the ideology of the government party (parties) has no significant impact on the structural deficit when unemployment is low or falling.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/000368497327227

Publication date: February 1, 1997

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