Apart from providing physical and human capital directly through the public budget, whose political determinants have been explored in Chapter 3, the government may equally choose to shape the supply conditions of the economy by “indirect” means. The state may affect the provision of supply factors through the creation of a public business sector. Also, it may affect the levels of both domestic savings and private investment through tax and regulatory measures.

This chapter starts by examining the political factors that motivated the distinct strategies that OECD nations have been pursuing toward the public business sector since the late 1980s. Besides confirming again the key role partisan forces have played, this first section highlights how increasingly strained economic conditions (since the mid-1970s) broke down an already tepid consensus around postwar industrial policies and generated substantially divergent policy responses across the political space. The second section then explores the evolution of tax policies. In light of the empirical results obtained in both this chapter and Chapter 3, the third section offers a first appraisal of the political dimensions of economic policymaking in advanced nations.

STRATEGIES TOWARD THE PUBLIC BUSINESS SECTOR

Although in the 1960s public firms played, on average, a sizable role in the OECD, the size of the public business sector differed sharply across nations. As a result of the emergence since the late 1970s of an extensive political debate about the role of state-owned firms and their potential privatization, these differences only increased in the following twenty years.