Varieties of Capitalism and Varieties of Macroeconomic Policy: Are Some Economies More Pro-Cyclical than Others?

Abstract

Recent contributions to the Variety of capitalism literature have argued that nonliberal economies should be expected to have less accommodating macroeconomic policies than Liberal Market Economies (LMEs). Using Time Series Cross Section data on 16 OECD countries between 1980 and 2002, we test the hypothesis the reaction of discretionary fiscal policy to macroeconomic shocks conditional on variables that differentiate liberal from nonmliberal varieties of capitalism: the degree of generosity of the social protection system, the degree of coordination of wage bargaining and the fragmentation of the political party system. Results do not lead to the conclusion that less nonliberal economies' macroeconomic policy would be less counter-cyclical that that of liberal economies. On the contrary, discretionary fiscal policy is more counter-cyclical in countries with a fragmented political system or a generous social protection system.

Keywords: Variety of Capitalism, macroeconomic policy

JEL Classification: P51, P16, E63