World Politics

This article examines the impact of parties, domestic institutions, and the international economy on the conduct of monetary and fiscal policies using time-series cross-section data from nineteen oecd countries for the years between 1960 and the mid-1990s. The results are as follows. Partisan governments have affected, alone and in interaction with the organization of labor markets, the pattern of macroeconomic management. Still, their impact has varied over time, partly as a function of economic conditions but fundamentally as a function of the degree of financial liberalization and the exchange-rate system in place. After following broadly similar macroeconomic policies in the 1960s, oecd governments pursued divergent monetary and fiscal policies in response to the economic slowdown of the 1970s. Even when they initially adopted countercyclical measures, conservative governments quickly favored tight monetary policies and strove to achieve fiscal discipline. By contrast, taking advantage of generalized capital controls and floating exchange rates, socialist cabinets embraced demand management policies in a systematic fashion--mostly through budget deficits in corporatist countries and through both loose monetary and loose fiscal measures in noncorporatist settings. As financial liberalization progressed in the early 1980s, partisan- and institution-led differences in macroeconomic policies waned across countries.