What’s in a polity? Political institutions and varieties of economic interventionism in the United States and the European Union

Donato Di Carlo, Lorenzo Moretti and Manuela Moschella

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This article examines the political foundations of industrial policy amid the return of state economic interventionism. Comparing the United States' Inflation Reduction Act (IRA) and the European Union's Green Deal Industrial Plan (GDIP), it shows that contrasting industrial policy strategies were ultimately shaped by differences in the two polities' legislative rules. In both cases, geopolitical pressures sparked renewed interest in green industrial policymaking. However, procedural mechanisms for majoritarian decision‐making in the U.S. Senate enabled the government to overcome partisan veto players and compelled the design of the IRA as a budgetary instrument centered on fiscal subsidies. By contrast, unanimity requirements in the EU's joint decision‐making system prevented the Commission from overcoming Member State veto players in the Council, precluding supranational fiscal instruments and resulting in a regulation‐based, decentralized approach via national state aid. The findings contribute to the burgeoning debates on the return of industrial policy and state activism by showing how political institutions contribute to shaping not only the scope but also the form of economic interventionism within different polities.

Keywords: economic interventionism; green deal industrial plan; green industrial policy; inflation reduction act (IRA); political institutions (search for similar items in EconPapers)
JEL-codes: H25 O20 P16 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2025-10-31
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Published in Governance, 31, October, 2025, 38(4). ISSN: 0952-1895

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