Economic performance of ‘weak’ governments and their interaction with central banks and labour: Deficits, economic growth, unemployment and inflation, 1961–1998

Abstract

Abstract. Comparative political economists have conventionally claimed that the strength and stability of governments affect policy making and performance, and that what they call ‘weak governments’– multiparty, minority and short‐lived governments – show poorer economic performance. This article tests this and related hypotheses on deficits, economic growth, unemployment and inflation by examining data from 17 OECD countries. I find that there is generally little evidence to indicate that so‐called ‘weak governments’, when considered independently, produce poorer performance than strong ones. However, the effects of different government types are partly contingent on central bank independence and labour organization. When central banks are independent, coalition governments exhibit better inflation and economic growth performance than one‐party governments, but the opposite happens when central banks are dependent. I attempt an explanation for these relationships. I also find that independent central banks, under certain conditions, lead to lower growth and higher inflation. Thus, some of the benefits of central bank independence are context‐specific, depending on other political‐economic factors.

Promising Parties: Can Parties in Government still Deliver?

“…61 Thus, partisan effects have remained visible and others argue that central banks and even the broader forces of globalization have not rendered parties in government less able to influence monetary and fiscal policies. Oatley 62 demonstrates that from 1970 to 1994 governments with parties of the Left in control were still more likely to run deficits and those where parties of the Right were in power they were more likely to reduce interest rates.…”

Partisan Policy-Making in Western Europe

“…One of the most common approaches in this field is to look for significant correlations of coalition governments and budget deficits. Sakamoto (2005) finds hardly any evidence for a worse performance of coalitions in terms of deficits, economic growth, unemployment and inflation. Roubini/Sachs, 1989a;1989b;Bräuninger, 2005).…”

“…See e.g Grilli et al (1991). orSakamoto (2005) for the influence of independent central banks. For the influence of restrictive budget rule seeMartin/Vanberg (2012a).…”

Comparative Politics: Some Points for Discussion

“…The finding is that it does not. Sakamoto (2005) tests the well-known hypothesis in comparative political economy that the variation in economic performance is an effect of type of government, in which weaker governments (e.g., multi-party or minority) are expected to have a poorer record than strong and stable ones. The finding is that this all depends on whether the Central Bank is independent or not.…”