Government Intervention and Long-Run Growth: An Ideologically Moderated Association?

Abstract

Government interventions can be designed in more or less market friendly ways, which may not be fully captured by standard measures of economic freedom. This paper argues that one way of capturing these factors is to focus on government ideology as moderating the relation between interventions and growth. The approach also offers a way to assess causality by focusing on ideological changes after close elections. A set of growth regressions suggests that the growth effects of specific policy areas of the economic freedom index are increasing in how left-wing the incumbent government is and that they can be considered causal.

Keywords: economic freedom, economic growth, government ideology JEL Codes: P00