¹ Hibbs, Douglas A., “Political Parties and Macroeconomic Policy,” American Political Science Review 71 (December 1977)CrossRefGoogle Scholar; idem, The American Political Economy: Macroeconomics and Electoral Politics (Cambridge: Harvard University Press, 1987)Google Scholar.

² Alesina, Alberto, “Politics and Business Cycles in Industrial Democracies,” Economic Policy 8 (April 1989)Google Scholar; Alesina, Alberto and Rosenthal, Howard, Partisan Politics, Divided Governments, and the Economy (New York: Cambridge University Press, 1995)CrossRefGoogle Scholar.

³ Inflation, however, is likely to remain above its preelection level under a left-wing government, because the latter's natural preference for expansionary policies erodes its anti-inflationary credibility.

⁴ Olson, Mancur, The Rise and Decline of Nations (New Haven: Yale University Press, 1982)Google Scholar; Goldthorpe, John, ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984)Google Scholar; Calmfors, Lars and Driffill, John, “Bargaining Structure, Corporatism and Macroeconomic Performance,” Economic Policy 6 (April 1988)Google Scholar.

⁵ Scharpf, Fritz W., “A Game-Theoretical Interpretation of Inflation and Unemployment in Western Europe,” Journal of Public Policy 7 (July-September 1987)CrossRefGoogle Scholar; idem, Crisis and Choice in European Social Democracy (Ithaca, N.Y.: Cornell University Press, 1991)Google Scholar.

⁶ Alesina, Alberto and Summers, Lawrence, “Central Bank Independence and Macroeconomic Performance,” Journal of Money, Credit and Banking 25 (May 1993)CrossRefGoogle Scholar.

⁷ For a review of open economy models of policy-making, see Keohane, Robert O. and Milner, Helen V., eds., Internationalization and Domestic Politics (New York: Cambridge University Press, 1996)CrossRefGoogle Scholar. A good review of the growing internationalization of capital markets can be found in Simmons, Beth, “The Internationalization of Capital,” in Kitschelt, Herbert et al. , eds. Continuity and Change in Contemporary Capitalism (New York: Cambridge University Press, 1999)Google Scholar.

⁸ See, for example, Kitschelt, Herbert, The Transformation of European Social Democracy (New York: Cambridge University Press, 1994)CrossRefGoogle Scholar.

⁹ Hibbs(fn. 1,1977).

¹⁰ Przeworski, Adam and Wallerstein, Michael, “Democratic Capitalism at the Crossroads,” in Przeworski, , Capitalism and Social Democracy (New York: Cambridge University Press, 1985)CrossRefGoogle Scholar.

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¹² Hibbs, Douglas A., “Partisan Theory after Fifteen Years,” European Journal of Political Economy 8 (1992)CrossRefGoogle Scholar.

¹³ Notice, also, that if economic actors are capable of either writing contracts that overcome the uncertainty of future electoral outcomes or renegotiating them immediately after elections, parties will not affect the business cycle at all.

¹⁴ Álvarez, R. Michael, Garrett, Geoffrey, and Lange, Peter, “Government Partisanship, Labor Organization and Macroeconomic Performance, 1967—1984,” American Political Science Review 85 (June 1991)Google Scholar; Beck, Nathaniel et al. , “Government Partisanship, Labor Organization, and Macroeconomic Performance: A Corrigendum,” American Political Science Review 87 (December 1993)CrossRefGoogle Scholar.

¹⁵ Alesina and Summers (fn. 6).

¹⁶ The impact of electoral cycles on macroeconomic policies has been examined extensively, however. Alesina and Roubini with Cohen (fn. 11) do so in the context of a closed economy model. More recently, in examining how the international economy affects the existence of an electoral business cycle, opportunistic policies have been shown to be less likely in the presence of a fixed-exchange-rate regime and high levels of capital mobility. See Clark, William R. and Reichert, Usha N. with Lomas, Sandra L. and Parker, Kevin L., “International and Domestic Constraints on Political Business Cycles in OECD Economies,” International Organization 52 (Winter 1998)CrossRefGoogle Scholar.

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¹⁸ Garrett, Geoffrey and Lange, Peter, “Political Responses to Interdependence: What's ‘Left’ for the Left?” International Organization 45 (Autumn 1991)CrossRefGoogle Scholar. For a recent analysis of the interaction of partisan politics and central banks, see Way, Christopher, “Central Banks, Partisan Politics, and Macroeconomic Outcomes,” Comparative Political Studies 33 (March 2000)CrossRefGoogle Scholar.

¹⁹ Garrett, Geoffrey, Partisan Politics in the Global Economy (New York: Cambridge University Press, 1998)CrossRefGoogle Scholar.

²⁰ IMF, International Financial Statistics. Figures are adjusted for inflation.

²¹ OECD, Main Economic Indicators.

²² Ibid.

²³ Quinn, Dennis, “The Correlates of Change in International Financial Regulation,” American Political Science Review 91 (September 1997)CrossRefGoogle Scholar.

²⁴ Data on partisan control of office are taken from Lane, McKay, and Newton for the period 1960–88 and, using their criteria, my own calculations based on the data published in the Keesing's Contemporary Archives for 1989–93. Lane, Jan-Erik, McKay, David, and Newton, Kenneth, Political Data Handbook OECD Countries (New York: Oxford University Press, 1991)Google Scholar.

²⁵ Cukierman, Alex, Central Bank Strategy, Credibility and Independence (Cambridge: MIT Press, 1992)Google Scholar.

²⁶ David Cameron, “Social Democracy, Corporatism, Labor Quiescence and the Representation of Economic Interest in Advanced Capitalist Society,” in Goldthorpe (fn. 4).

²⁷ Cameron (fn. 26); Miriam Golden and Michael Wallerstein, “Trade Union Organization and Industrial Relations in the Postwar Era in Sixteen Nations” (Paper presented at the annual meeting of the American Political Science Association, New York, 1994); Lange, Peter, Wallerstein, Michael, and Golden, Miriam, “The End of Corporatism? Wage Setting in the Nordic and Germanic Countries,” in Jacoby, Sanford M., ed., The Workers of Nations: Industrial Relations in a Global Economy (Oxford: Oxford University Press, 1995)Google Scholar; OECD Employment Perspectives 1993 (Paris: OECD 1993)Google Scholar; Traxler, Franz, The Level and Coverage of Collective Bargaining:A Cross-National Study of Patterns and Trends (Paris: OECD, 1994)Google Scholar.

²⁸ All panel regressions have been run with and without fixed effects. Fixed effects imply introducing n — 1 country dummies. In the regressions on monetary policy (Tables 1 and 2), the inclusion of country dummies (to allow for variation across countries' intercepts) does not change the coefficients of the independent variables. Except for the last model (in Table 2), the country dummies are not statistically significant (even in a joint F-test). In the regressions on fiscal policy (Tables 3 and 4) the inclusion of country dummies partially alters model 5 in Table 3—in fact intensifying the direction of the partisan and labor-market effects found in the non-fixed-effects model. Tables 1, 2, 3, and 4 (those displaying panel regression results) report the results obtained without fixed effects both because of the general lack of statistical significance of fixed effects and for theoretical reasons (the introduction of country dummies simply controls for unexplained factors; see Przeworski, Adam and Teune, Henry, The Logic of Comparative Social Inquiry [New York: Wiley, 1970]Google Scholar). Results with fixed effects can be obtained from the author.

²⁹ Results do not vary when the last year of the “stagflation” period is modified, that is, when the historical periods are 1973–79 and 1980–93. The closer the divide is to 1982, the less significant in statistical and substantive terms the effect of socialist cabinets in the 1980s.

³⁰ For the simulation I have set all the variables at their mean levels, with the exception of partisanship and the interactive term “partisanship*organizational power of labor.” The annual change of interest rates that results from the regression is added to the world real interest rates at time t-1 to calculate the level of interest rates at time t (which is the result represented in the simulations). The world interest rate is the weighted average (by size of GDP) of the interest rates of the seven largest economies—Canada, France, Germany, Italy, Japan, the U.K., and the U.S.

³¹ Results not reported here show that central bank independence is an important factor in the management of monetary policy. When socialist control of government (without adjusting for the level of central bank independence) is regressed on interest rates, the size of the coefficient is smaller. For example, socialist control of the government in the 1970s reduces interest rates by 0.99 points (versus 1.65 in Table 1, model 3).

³² The variable of social democratic corporatism (alone or controlled by partisanship and organization of the labor market) is not statistically significant. Results are not reported here.

³³ Corporatist countries are those that score more than 0.5 in the standardized index of the organizational power of labor (Austria, Belgium, Denmark, Finland, Norway, and Sweden). The noncorporatist countries are those that score less than 0.3 in the standardized index (Australia before 1980, Canada, France, Greece, Ireland, Italy, Japan, Portugal, Spain, Switzerland, the U.K. after 1980, and the U.S.).

³⁴ Goodman, John B. and Pauly, Louis W., “The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets,” World Politics 46 (October 1993)CrossRefGoogle Scholar; Eichengreen, Barry, Global-izing Capital: A History of the International Monetary System (Princeton: Princeton University Press, 1996)Google Scholar.

³⁵ The data is from IMF, Annual Report on Exchange Arrangements and Exchange Restrictions (various years), appendix.

³⁶ For the simulation I have set the control variables to their mean level in the period under analysis: Interest Rate_t-1 = 2.65%, CPI _t-1 = 6.55%, U.S. Interest Rates = 2.77%.

³⁷ Roubini, Nouriel and Sachs, Jeffrey D., “Political and Economic Determinants of Budget Deficits in the Industrial Democracies,” European Economic Review 33 (May 1989)CrossRefGoogle Scholar; Alesina and Roubini with Cohen (fn. 11).

³⁸ Data are from Roubini and Sachs (fn. 37) and are completed with material from OECD, Economic Outlook (various years), appendix.

³⁹ From OECD, Economic Outlook (various years).

⁴⁰ Accordingly, as pointed out in Roubini and Sachs (fn. 37), the specification of the structural model is consistent with both Barro's “tax smoothing” model and the traditional Keynesian approach to usingfiscaldeficits to smooth the business cycle. In both theoriesfiscaldeficits are countercyclical. Barro, Robert J., “U.S. Deficits since World War I,” Scandinavian Journal of Economics 88, no. 1 (1986)CrossRefGoogle Scholar.

⁴¹ The sample employed is based on Roubini and Sachs (fn. 37), extended with new OECD data when available. The countries (and sample periods) included are Australia (1967–88), Austria (1972–93), Belgium (1962–90), Canada (1962–93), Denmark (1971–93), Finland (1977–93), France (1970–92), Germany (1962–93), Greece (1984–90), Ireland (1962–93), Italy (1966–93), Japan (1971–93), the Netherlands (1972–93), Norway (1972–91), Sweden (1972–93), Spain (1985–93), Switzerland (1972–93), the United Kingdom (1962–93), and the United States (1962–93).

⁴² Roubini and Sachs (fn. 37). This difference may be related to the sample employed here, which is two times the size of the Roubini and Sachs sample and which corrects for the bias in the latter's study due to its exclusion of several OECD countries.

⁴³ For the simulation I have set all the variables except partisanship at their mean levels.

⁴⁴ Martin (fn. 17).

⁴⁵ I find no empirical evidence to support the claim that public deficits rise both with cabinet fragmentation (Roubini and Sachs [fn. 37]) and under minority governments (Edin, Per-Anders and Ohlsson, Henry, “Political Determinants of Budget Deficits: Coalition Effects versus Minority Effects,” European Economic Review 35 [December 1991]CrossRefGoogle Scholar). The results are not reported in this article.

⁴⁶ For the simulation I have set the control variables to their mean level in the period under analysis: Deficit _t-1 = 0.738, Change in Unemployment Rate = 0.246, Change in Cost of Servicing Debt (DBR) = -1.78

⁴⁷ The presence of capital controls was initially negatively correlated to the independence of the central bank. This result confirms the findings of Alesina, Alberto, Grilli, Vittorio, and Milesi-Ferretti, Gian-Maria, “The Political Economy of Capital Controls,” in Leiderman, Leonardo and Razin, Assaf, eds., Capital Mobility: The Impact on Consumption, Investment and Growth (New York: Cambridge University Press, 1994)Google Scholar. The degree of financial restrictions and of central bank independence in 1970 shows a Pearson's coefficient of-0.53. For 1993 this coefficient falls to -0.05.

⁴⁸ Goodman and Pauly (fn. 34); Eichengreen (fn. 34).

⁴⁹ Simmons (fn. 7).

⁵⁰ This interpretation borrows heavily from Gruber's concept of “go-it-alone power” to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straight forward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, “Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation,” Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, “Interstate Cooperation and the Hidden Face of Power: The Case of European Money,” Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See McKenzie, Richard B. and Lee, Dwight R., Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991)Google Scholar; O'Brien, Richard, Global Financial Integration: The End of Geography (London: Pinter, 1992)Google Scholar; and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Notermans, Ton, “The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor,” Politics and Society 21 (June 1993)CrossRefGoogle Scholar; or such as the internal balance of power among sectoral interests in Frieden, Jeffry A., “Invested Interested: The Politics of National Economic Policies in a World of Global Finance,” International Organization 45 (Autumn 1991)CrossRefGoogle Scholar.

⁵¹ For a discussion of how several European socialist governments perceived (and justified) the deregulation of financial markets as the only possible response to a change in the external environment brought about by the policies of other (key) countries, see Boix, Carles, Political Parties, Growth and Equality: Conservative and Social Democratic Economic Strategies in the World Economy (New York: Cambridge University Press, 1999)Google Scholar.

⁵² This combination of loose fiscal policies and tight monetary policies was not coincidental. It was related to the structure of electoral incentives confronted by socialist parties in rather different political and institutional environments. Socialist governments in noncorporatist countries could not count on organized labor movements to achieve wage moderation and also carry over broad electoral coalitions. Without a labor movement holding blue-collar workers together and delivering their votes to the Socialist Party, social democratic governments could hardly attract simultaneously both pro-high-spending left-wing voters and moderate middle-class voters concerned with taxes. A natural (and in the short term politically not costly) way to reconcile their competing claims involved running a higher budget deficit. In countries where unions are strong and parties are well-organized political machines, those political dilemmas were less pressing. For a historical account of the Spanish case, see Boix (fn. 51), 105–55.

⁵³ For an analysis of the impact of ideas, see Hall, Peter A., “Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain,” Comparative Politics 25 (April 1993)CrossRefGoogle Scholar.

⁵⁴ Robert J. Franzese “Monetary Policy and Wage/Price Bargaining: Macro-Institutional Interactions in the Traded, Public, and Sheltered Sectors,” in Peter Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (forthcoming).

⁵⁵ Scharpf (fn. 5, 1987 and 1991).

⁵⁶ Martin (fn. 17)

⁵⁷ At this point, it is not difficult to see, however, that a policy of public investment is not restricted to the domain of corporatism. It is an economic strategy that any social democratic government will pursue regardless of how coordinated the domestic labor market is. See Boix (fn. 51).