What Curbs Social Investment? The Effect of Foreign Electoral Outcomes on Childcare Expenditure Levels

Abstract

This study aims to deepen our understanding of social investment expansion proposing a political learning mechanism to link existing institutional and political explanations. When resources are limited, increased spending in social investment often comes at the expense of politically costly retrenchment of established social insurance policies. Previous studies suggest that this trade-off results in existing entitlements crowding out new policies, and that party ideology plays less of a role in determining social policy expansion. I argue that this is because parties face an electoral dilemma, as individual preferences for social investment and social insurance have been shown to differ between groups that partly overlap in their voting behaviour. Applying a policy diffusion framework to the analysis of childcare expenditure, this study proposes that policymakers learn from the political consequences of past decisions made by their foreign counterparts and update their policy choice accordingly. The econometric analysis of OECD data on childcare expenditure shows that governments tend to make spending decisions that follow those of ideologically similar cabinets abroad and that left-wing governments with a divided electorate tend to reduce childcare expenditure if a previous expansionary decision of a foreign incumbent is followed by an electoral defeat. The findings have implications for the study of the politics of social policy development.