Economic Freedom in the Early 21st Century: Government Ideology Still Matters

Abstract

Empirical studies show that government ideology has hardly influenced welfare expenditures since the 1990s, casting doubt on the general ability of national governments to design economic policies according to their programmatic appeals. This study takes a comprehensive view on policy-making by using a modified version of the Fraser institute’s Economic Freedom of the World Index: I focus on the aspects of economic freedom that provoke party polarization and that national governments are capable to influence. The results suggest that government ideology still matters in the early 21st century: The empirical analysis of 36 OECD or new European Union member states from 2000 to 2012 shows that left-wing governments are associated with significantly lower economic freedom. Economic freedom continues to be the guiding principle that divides left and right in economic policy-making because the left still promotes relatively higher levels of government spending and regulation.

Keywords: Government ideology, partisan hypothesis, party politics, party realignment, economic freedom, economic policies, public expenditures, transfers and subsidies, privatization, taxation, regulation