Do Conservative Governments Make a Difference in Fiscal Policy? Evidence from the U.S. and the U.K

By Liargovas, Panagiotis; Manolas, George | Journal of Economic Issues, September 2007 | Go to article overview

Do Conservative Governments Make a Difference in Fiscal Policy? Evidence from the U.S. and the U.K


Liargovas, Panagiotis, Manolas, George, Journal of Economic Issues


In a recent paper, Ott, Belova, and Dolgopolov (2003) examined the effects of partisan politics on monetary policy for the United States and the United Kingdom (UK). They actually tested Secretary Simon's (1980) question "Do conservative governments make a difference in monetary policy?" (1) In his speech before the Mont Pelerin Society, William E. Simon developed his vision for the future of the nation in a program he called "An Action Program to Achieve National Goals." In this program, Simon elaborated on the use of monetary and fiscal policy to achieve the nation's goals (i.e., price stability, employment opportunity, economic and export growth and strong dollar). The program he put forth was quite comprehensive, one that required the coordination of national economic policies. Simon's action program consisted of five recommendations referred to as "rules." Rules 1, 2 and 3 were fiscal rules for addressing budget posture, the level of federal spending in relation to gross domestic product (GDP), and the tax burden. Rule 4 was the money rule, setting the growth rate of money, while rule 5 dealt with the scope of federal regulation. Simon's rule 4 was the focus of an Ott, Belova, and Dolgopolov (2003) paper. Simon's rules 1, 2, 3 and 5 are the focus of this paper. More specifically, we try to answer the question: "Do conservative governments make a difference in fiscal policy?" The next part of the paper offers a theoretical and empirical overview of the effects of partisan politics on fiscal policy along the lines of political cycles research. Section three formulates the testable hypothesis and discusses data and methodology, while the fourth section presents the empirical results. The final section offers some concluding remarks.

Theoretical and Empirical Overview: The Political Cycles' Literature

The theoretical role of political parties in fiscal policy has been the favorite topic of many analysts since the 1970s. It has been investigated through the lines of the political cycles literature, in which governments act in favor of their own political interests and/or the interest of particular interest groups. As a result, their actual policies can give rise to political cycles distinguished into electoral cycles (EC) and partisan cycles (PC). Electoral cycles are defined as persistent cyclical patterns of key policy and target variables across electoral terms, regardless of the political party in power. (2) Partisan cycles are persistent differences in such patterns conditional upon the ideology of the party in power.

The first-generation PC models were developed by Hibbs (1977) and feature the idea that policy should be more expansionary, output growth and inflation should be higher, and unemployment should be lower under non-conservative/ interventionist governments (socialist, left-wing governments) than under conservative/libertarian ones. (3) They are based in the conventional view that interventionist parties have a preference for equality, redistribution, social benefits to the unemployed, public provision of human and physical capital and a higher degree of public intervention in the economy. Therefore, they have a tendency to spend, regardless of both the revenue levels accruing to government and macroeconomic conditions (Cowart 1978, 432). By contrast, libertarian or pro-market governments have a preference toward smaller state intervention in the economy, leaving more room to the market forces to generate economic growth. Therefore, they have a tendency to tax and spend less and run balanced and small budgets.

The first-generation PC (and EC) models took no account of the new classical-rational expectations revolution in macroeconomics and the collapse of the Philips curve. This gap was filled by the second-generation of models in the early and mid 1980s (Alesina 1987; 1989; and Alesina and Sachs 1988). According to rational expectations, partisanship has only temporary effects. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Do Conservative Governments Make a Difference in Fiscal Policy? Evidence from the U.S. and the U.K
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.