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The role of political partisanship during economic crises

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  • Vincenzo Galasso

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Abstract

Major economic crises may promote structural reforms, by increasing the cost of the status quo, or hinder them, by inducing more demand for protection. The ideology and political partisanship of the ruling government may be crucial in determining the prevailing course of action. In good times, conservative parties are typically pro-reform. However, do these parties try to exploit periods of crisis to carry out their reforms? Do social-democratic parties support even greater social protection? To answer these questions, this paper uses indicators of structural reforms in the labor, product, and financial markets for 25 OECD countries over the 1975–2008 period. The empirical analysis confirms the ambiguous effect of crises: product markets are liberalized, but financial markets become more regulated. Partisan politics also matters, as right parties are associated with more pro-market reforms. Yet, crises modify partisan politics: right-wing parties refrain from promoting privatizations, and oppose the introduction of greater financial market regulations. By contrast, center parties liberalize and trim unemployment benefits generosity, while left parties privatize. Furthermore, weak, fractionalized governments, which are associated with more regulated product markets, are also more likely to liberalize during a crisis. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Vincenzo Galasso, 2014. "The role of political partisanship during economic crises," Public Choice, Springer, vol. 158(1), pages 143-165, January.
  • Handle: RePEc:kap:pubcho:v:158:y:2014:i:1:p:143-165 DOI: 10.1007/s11127-012-9956-6
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    Cited by:

    1. repec:kap:pubcho:v:173:y:2017:i:1:d:10.1007_s11127-017-0447-7 is not listed on IDEAS
    2. Potrafke, Niklas, 2017. "Partisan politics: The empirical evidence from OECD panel studies," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 712-750.
    3. Lucifora, Claudio & Moriconi, Simone, 2015. "Political instability and labour market institutions," European Journal of Political Economy, Elsevier, vol. 39(C), pages 201-221.
    4. Ágota Scharle & Balázs Váradi & Flóra Samu, 2015. "Policy convergence across welfare regimes: the case of disability policies," WWWforEurope Working Papers series 76, WWWforEurope.
    5. Xavier Cuadras Morató & Toni Rodon, 2017. "The Dog that Didn’t Bark: On the Effect of the Great Recession on the Surge of Secessionism," Working Papers 968, Barcelona Graduate School of Economics.
    6. Bove, Vincenzo & Efthyvoulou, Georgios & Navas, Antonio, 2017. "Political cycles in public expenditure: butter vs guns," Journal of Comparative Economics, Elsevier, pages 582-604.
    7. repec:eee:poleco:v:48:y:2017:i:c:p:74-90 is not listed on IDEAS
    8. Favero, Carlo A. & Galasso, Vincenzo, 2015. "Demographics and the Secular Stagnation Hypothesis in Europe," CEPR Discussion Papers 10887, C.E.P.R. Discussion Papers.
    9. Francesco Passarelli, 2011. "Risky Political Changes: Rational Choice vs Prospect Theory," ISLA Working Papers 39, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.
    10. Vogel, Lukas, 2017. "Structural reforms at the zero bound," European Journal of Political Economy, Elsevier, vol. 48(C), pages 74-90.
    11. Prato, Carlo & Wolton, Stephane, 2013. "Rational Ignorance, Elections, and Reform," MPRA Paper 68638, University Library of Munich, Germany, revised 10 Dec 2015.

    More about this item

    Keywords

    Structural reforms; Partisan politics; Economic crisis; D7; H5;

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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