Politics and macroeconomic performance in the OECD countries

Thomas R. Cusack

No FS I 95-315, Discussion Papers, Research Unit: Economic Change and Employment from WZB Berlin Social Science Center

Abstract: This paper provides an overview of the major macroeconomic problems that have confronted the OECD countries during the last four decades. It also explores some leading arguments regarding the political bases of these problems. An extensive account of the experiences of these countries in terms of five major macroeconomic problem areas, growth, employment, price stability, external balances, and equality, is provided. The relative performance of these countries is given particular emphasis. An attempt is made to place their economic progress and difficulties into a broader historical perspective and to provide some background with respect to related developments. This is followed by a discussion of three of the leading arguments regarding the political basis of economic performance (social consensus, class-based partisan politics, and government failure). An evaluation of the empirical validity of these arguments is provided. None of the three arguments (and their variants) garnered evidence that was uniformly supportive. Aside from somemodest support for the coherence version of the class-based partisan politics model, the effects of political factors on growth appear to be nil. The existence of tradeoffs between left and right preferences in terms of other macroeconomic outcomes, specifically with respect to unemployment and inflation, seem not to manifest themselves in the presence of social consensus. Both the desired outcome of full employment and price stability can be achieved under conditions of social consensus. Interestingly, such consensus will do nothing to advance the goal of income equalization. Partisan politics does seem to matter in most of the economic problem areas examined. There is some evidence that a strong left and labor will bring about lower unemployment and greater equality at the cost of higher inflation and a poorer performance on the external account.

Date: 1995
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