Recently, several interesting attempts have been made at connecting comparative political economy (CPE) approaches, as the Varieties of Capitalism (VoC) theory, with post-Keynesian (PK) research on different demand-led growth regimes in modern capitalism, and for the period of finance-dominated capitalism since the early 1980s in particular. However, we find several problems in the way Kaleckian and PK approaches are interpreted and integrated in modern CPE approaches. Therefore, we first clarify several ambiguities and misunderstandings of PK demand-led growth regimes and their empirical indicators in the recent CPE literature, and, following the recent PK literature, we provide a theoretically consistent and empirically applicable classification of demand and growth regimes under the conditions of finance-dominate capitalism. Second, instead of using the traditional VoC dual classification, we link and confront the PK demand and growth regimes with the recent evolution of Esping-Andersen's (1990) taxonomy which considers five welfare models. Third, we examine the relationships between demand-led growth regimes and welfare models, both before and after the 2007-9 global crisis. For this purpose, we share the qualitative taxonomy suggested by Hay and Wincott (2012), and additionally we quantitatively assess the degree of welfare of each country and its evolution by means of a 'principal component analysis' (PCA), which allows us to synthesize four socioeconomic indicators in a multidimensional measure of welfare.

Abstract Empirical works documenting highly persistent effects of negative demand shocks (‘hysteresis’) have questioned the prevailing wisdom that potential output is exogenous to aggregate demand fluctuations. We assess whether the effects of positive demand shocks also tend to persist beyond the short run. We estimate the impact of 126 aggregate demand expansions in OECD countries between 1960 and 2015 through local projections, using a dynamic two-way fixed-effects model and a propensity score-based specification. We find that demand expansions exert positive persistent effects on GDP, participation rate and capital stock. Effects on the unemployment rate and productivity are also strong and quite persistent, but evidence regarding their permanence is mixed. The effect on the inflation rate is positive but small and imprecisely estimated, and there is no sign of accelerating inflation. Our results bear relevant implications for existing models of hysteresis and for theories of demand-led growth.

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The recent economic crisis was a test case for many advanced countries to determine the capacity of their socio-economic model to cope with the challenges of globalisation and financial crash. From this perspective, the aim of this article is to explore whether the expansion of the welfare state should be seen as a barrier to economic growth and competitiveness, as ‘neoliberal’ economists often argue, or whether increasing public social provision might contribute to enhancing real income. After a comparative discussion of the evolution of different welfare models in developed countries, we advance our argument that public social spending is not a drain on competitiveness or an obstacle to economic efficiency. On the contrary, we explore the possibility that increasing welfare expenditure can stimulate economic growth along with lowering inequality, while the so-called ‘efficiency thesis’ (according to which globalisation needs to be accompanied by the retrenchment of welfare states in order to promote external competitiveness) produces worse economic performance and higher inequality. As a test of this hypothesis, we analyse empirical data on 34 Organisation for Economic Co-operation and Development countries from 1990 to 2013. We use econometric analysis to indicate that the so-called ‘compensation thesis’ (a process whereby globalisation is regulated through expansion of welfare states) may contribute to real income dynamics, while greater income inequality may inhibit per capita gross domestic product growth. JEL Codes: I380, P510, F600, G010

The prevailing wisdom that aggregate demand shocks determine short-run cyclical fluctuations around a supply-determined equilibrium growth rate and an associated equilibrium unemployment rate (or NAIRU) has been called into question by various strands of literature over the last few decades. Specifically, a recently revived literature on hysteresis finds significant persistence in the effects of negative aggregate demand shocks (e.g.

A major contribution of Friedman's 1968 presidential address was the introduction of the long-run vertical Phillips curve. That view, which is consistent with neoclassical foundations, has become so profoundly entrenched in macroeconomists' thinking that increasing evidence of ‘hysteresis’ has not as yet dislodged it. The prevailing notion of the non-accelerating inflation rate of unemployment (NAIRU) is constructed in terms of the ‘natural’ unemployment rate, which has allowed for some changes regarding its microeconomic determinants. However, the macroeconomic features of Friedman's natural rate and the NAIRU remain very much the same and unchanged. The blatant path-dependence of empirically estimated NAIRUs creates a dissociation between macroeconomic theory and empirics which, in our view, is unacceptable and demands a change of perspective. Adopting an alternative theory of distribution and employment might rehabilitate the original approach taken by Phillips vis-à-vis Friedman's legacy.

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