 Wage centralization and the political economy of budget deficitsEuropean Journal of Political Economy, 2022, vol. 74, issue C Abstract: This paper studies the relationship between wage centralization and budget deficits. Using a panel of 18 major OECD countries from 1980 to 2014, I find strong evidence that wage centralization is associated with lower budget deficits in the panel of industrialized economies. The autoregressive distributed lag (ARDL) model shows that this negative link is mostly in the long run and not in the short run. The empirical results suggest that this negative association cannot be explained by either wage coordination at national level or by formal/informal cooperation among industry-level unions. Instead, the paper introduces a political economy model that can be viewed as one potential explanation for the empirical results. The model argues that wage centralization interacts with the political economy of budget deficits, leading to a lower level of deficit bias. The suggested mechanism is based on sectoral wage inter-dependency that emerges from centralization of wage bargaining. Keywords: Budget deficits; Wage bargaining centralization; Sectoral wage interdependency; Political economy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:74:y:2022:i:c:s017626802100135x DOI: 10.1016/j.ejpoleco.2021.102168 Access Statistics for this article European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung More articles in European Journal of Political Economy from Elsevier |
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