And Yet It Grows: Crisis, Ideology, and Interventionist Policy Ratchets

42 Pages Posted: 10 Oct 2016

See all articles by Christian Bjørnskov

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies; Institute for Corruption Studies

Martin Rode

University of Navarra

Date Written: October 1, 2016

Abstract

Previous studies of policy responses to economic crises argue that crises may lead to more interventionist policy but also cause deregulation. The empirical evidence in previous studies is equally mixed. The present paper argues that whether or not governments implement more or less interventions depend on their core political ideology. We thus expect ideologically heterogeneous policy reactions to crises yet also note that crisis responses theoretically may cause ‘policy ratchets’ where temporary crisis policies become permanent. Employing a panel of 68 countries with Western political institutions observed between 1975 and 2010, and exploring the evolution of indicators of government size and regulatory policy, we find that crises in general cause more interventionist policies when countries have centrist or left-wing governments. We also find clear evidence of policy ratchets in all policy areas. The ideological crisis policies mainly relate to government consumption and market regulations.

Keywords: Economic Crisis, Regulation, Government Consumption, Government Ideology

JEL Classification: D72, H70, H11

Suggested Citation

Bjørnskov, Christian and Rode, Martin, And Yet It Grows: Crisis, Ideology, and Interventionist Policy Ratchets (October 1, 2016). IFN Working Paper No. 1135, Available at SSRN: https://ssrn.com/abstract=2849797

Christian Bjørnskov (Contact Author)

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

Martin Rode

University of Navarra ( email )

Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain

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