Economic Freedom in the Early 21st Century: Government Ideology Still Matters

Abstract

Summary Empirical studies show that government ideology has hardly influenced welfare expenditures since the 1990s, casting doubt on the general ability of national governments to design economic policies according to their programmatic appeals. This study takes a comprehensive view on policy‐making by using a modified version of the Fraser Institute's Economic Freedom of the World Index. I focus on the aspects of economic freedom that provoke party polarization and that national governments are capable of influencing. The results suggest that government ideology still matters in the early 21st century: The empirical analysis of 36 OECD or new European Union member states from 2000 to 2012 shows that left‐wing governments are associated with significantly lower economic freedom. Economic freedom continues to be the guiding principle that divides left and right in economic policy‐making because the left still promotes relatively higher levels of government spending and regulation.

International evidence on state ownership and trade credit: Opportunities and motivations

“…Beck, Clarke, Groff, Keefer, and Walsh ( 2001 ) and Megginson, Nash, Netter, and Poulsen ( 2004 ) posit that left-wing governments exert more state control over a nation’s economy. Additionally, Besley and Case ( 2003 ) and Jager ( 2017 ) identify that government spending is higher when a left-wing political party is in power. Heightened levels of government spending increase the likelihood of subsidies for SOEs, which make possible more extensive financing advantages for SOEs, which in turn leads to a greater ability of SOEs to extend trade credit.…”

Government ideology and economic freedom

“…However, this evidence was confined to the West German States. Considering a broader group of European Union member states over the period 2000-2012, Jäger (2017 reports that left-wing governments are significantly more likely to restrict economic freedom than right-wing governments. In a more recent work, Murphy (2019) uses the Botero et al (2004) measure of government ideology to predict the EFW index for the years 1995 and 2015.…”

Does globalisation alleviate polarisation?

“…However, growing polarisation has not only been observed in developed countries; developing countries all over the world have witnessed the rise of polarisation in the 21st century. One of the most unusual cases is Venezuela, a country that has been strongly divided between the leftist government and its followers parties (Jäger, 2017). "Elite polarisation" refers to polarisation among the formal political actors (politicians) or institutions populated by these politicians (e.g.…”