Partisan influence on social spending under market integration, fiscal pressure and institutional change

Ideology and redistribution through public spending

“…This is explained by an increased demand for public insurance against external risks faced by firms and households (Rodrik 1998, Iversen 2001). Herwartz and Theilen (2014a), however, find that increased trade openness and export surpluses go along with less public spending on social issues. This is explained by the fact that with an increased trade dependency and more international competition, governments have intended to attract foreign investments (and to retain domestic investments) by reducing corporate taxation and other tax and social security payments of firms which has created pressures to downsize the public sector (Bénassy-Quéré et al 2007, Chengrui 2014.…”

“…Regarding social expenditure, Hicks and Swank (1992), Kittel and Obinger (2003), Bräuninger (2005), Potrafke (2009) and Herwartz and Theilen (2014a) find that left-wing parties spend more than right-wing parties on social issues. The more recent studies have shown, however, that the influence of party ideology has decreased over time which has been addressed to a general institutional change that took place in the early 1990s, and that can be explained by the creation of new supranational institutions, and strengthened integration of goods and capital markets (Herwartz and Theilen 2014a). Similar tendencies have been shown, for example, for health care expenditure (Potrafke 2010, Herwartz andTheilen 2014b), pension expenditure (Tepe and Vanhuysse 2009), or education expenditure (Potrafke 2011, Jensen 2011.…”

“…In empirical studies, political business cycles have been documented for total public expenditure in developed economies (e.g. Alesina et al 1997, Persson andTabellini 2000), or for expenditure categories like social expenditure (Herwartz and Theilen 2014a), or health care expenditure (Potrafke 2010, Herwartz andTheilen 2014b). 8 7 Neglecting ideological aspects, some authors also have studied the relationship between budget composition and socio-economic processes such as population ageing or globalization.…”

“…To characterize the long-run trends in PE, we rely on explanatory variables that are common to explain cross-country and time variations of PE or its components, namely, per capita gross domestic product (GDP), the unemployment rate (UE) and the dependency ratio (DR) (e.g., Hicks and Swank 1992, Sanz and Velazquez 2007, Shelton 2007, Herwartz and Theilen 2014a. GDP is measured in logarithms of quotes in US dollar and US purchasing power parity implied prices with 2005 as the base year.…”

“…However, recent studies have shown only a muted effect of party ideology, for example, on social expenditure (Iversen 2001, Kittel and Obinger 2003, Potrafke 2009, Herwartz and Theilen 2014a or health expenditure (Potrafke 2010, Herwartz andTheilen 2014b) after the 1990s. Furthermore, right-wing parties are, generally, more in favour of a reduced public sector and, therefore, aim to limit overall public expenditure (see e.g.…”