Abstract. Re-analyzing a study of Garrett and Mitchell ('Globalization, government spending and taxation in the OECD', European Journal of Political Research 39(2) (2001): 145-177), this article addresses four potential sources of problems in panel data analyses with a lagged dependent variable and period and unit dummies (the de facto Beck-Katz standard). These are: absorption of cross-sectional variance by unit dummies, absorption of time-series variance by the lagged dependent variable and period dummies, mis-specification of the lag structure, and neglect of parameter slope heterogeneity. Based on this discussion, we suggest substantial changes of the estimation approach and the estimated model. Employing our preferred methodological stance, we demonstrate that Garrett and Mitchell's findings are not robust. Instead, we show that partisan politics and socioeconomic factors such as aging and unemployment as expected by theorists have a strong impact on the timeseries and cross-sectional variance in government spending.

Most comparativists who study welfare state development agree that religion has played a role in the development of modern social protection systems. The early protagonists of the power resources approach, however, had only stressed the causal impact of Socialist working-class mobilization on modern social policy (see Esping-Andersen and van Kersbergen 1992). In their view, it was the working class and its Socialist organizations that had been the driving force behind the 'social democratization' of capitalism via the welfare state. To them, it came as a surprise that both Social Democracy and (social) Catholicism promoted welfare state development. John D. Stephens (1979: 100), one of the leading spokesmen of this approach, put it in prudent terms when he argued that 'it seemed possible that anti-capitalist aspects of catholic ideology-such as notions of fair wage or prohibitions of usury-as well as the generally positive attitude of the catholic church towards welfare for the poor might encourage government welfare spending.' Similarly, Schmidt (1980, 1982) asserted that Social Democracy and Christian Democracy were functionally equivalent for welfare state expansion, at least during periods of economic prosperity. Wilensky (1981) argued that the two movements overlapped considerably in ideological terms and that Catholicism indeed constituted an even more important determinant of We are grateful for extremely helpful comments by Thomas Ertman,

It has been recognized since the publication of Esping-Andersen's Three Worlds of Welfare Capitalism that the advanced Western welfare state comes in-at leastthree variants: as a Nordic social-democratic regime, a conservative regime on the European continent or as a liberal welfare state regime in the Anglo-Saxon countries. Why exactly welfare states fit into this three-regime typology remains controversial, however. This article presents an argument which provides the three-regime heuristic with a historical foundation. The argument combines insights into the importance of electoral rules for the representation of socioeconomic interests (of the lower and middle classes) with insights about the different cleavage structures which left their imprint on the party systems of Western Europe. This article's central claim is that a majoritarian electoral system leads to a residual-liberal welfare state, whereas in countries with proportional representation, either a red-green coalition between Social Democracy and agrarian parties (Scandinavia) or a red-black coalition between Social Democracy and Christian Democracy (on the European continent) was responsible for the build-up of the Nordic and continental welfare state, respectively.

Germany was comparatively successful in weathering the macroeconomic crises of the 1970s and early 1980s, and its industrial sector remained highly competitive throughout. Nevertheless, unemployment has been high and is still rising. The impact of unification is only a part of the explanation. Instead, the very formula for Germany's past success is also the key to its current problems. Cooperative labour relations, on which German international competitiveness depends, were maintained by using the welfare state's generous exit options from the labour market for older and less productive workers. Given the prevailing mode of financing the “Bismarckian” welfare state, however, the resulting rise of social security contributions added to the costs of labour throughout the economy. As the government relied on the same solution in coping with the massive employment losses in East Germany after unification, non‐wage labour costs have risen to a level that can be sustained only by highly productive types of work. This constrains the growth of private services that have compensated industrial job losses in other countries.