The connections between fiscal policy and the government ideological composition – evidence from OECD countries

Author: Nino Kokashvili 

Does the government ideological composition play a role in fiscal policy formation? According to the conventional view left winged governments are more likely to increase government spending, while right winged governments are reducing public debt. This paper examines how ideological composition of government influences general government spending using data from 25 OECD countries for the period from 1995 through 2014. Results of fixed effect regression model suggest that there is no effect of partisanship neither on general government expenditure, nor on social spending or military spending. Results also suggest that while there is no difference in spending amount, left-winged governments tend to have relatively higher deficit spending policies than right-winged government. Also, I find a negative significant effect of right winged ideology on general expenditure in case of relatively high unemployment level.  On the one hand empirical findings support newly developed idea that partisanship effect is insignificant as partisan differences are minor due to the increased level of globalization and international integration in last few years, but on the other high debt polices for left oriented governments underline the effect of ideological difference on policy formation.

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 Fiscal policy and government ideological composition