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The Long-Run Effect of Government Ideology on Economic Freedom

The Long-Run Effect of Government Ideology on Economic Freedom. Ryan H. Murphy Southern Methodist University Public Choice Society Annual Meetings 2018 3/3/18. What Is The Effect of Ideology on Economic Freedom?. Simplistic Common Sense Model: Conservatives Prefer Markets

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The Long-Run Effect of Government Ideology on Economic Freedom

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  1. The Long-Run Effect of Government Ideology on Economic Freedom Ryan H. Murphy Southern Methodist University Public Choice Society Annual Meetings 2018 3/3/18

  2. What Is The Effect of Ideology on Economic Freedom? • Simplistic Common Sense Model: Conservatives Prefer Markets • Libertarian Hot Take: Conservatives Love Spending and Regulating as Long as They’re The Ones Doing It • Baseline Public Choice Analysis: Median Voter Theorem Holds

  3. Existing Literature • Bjornskov and Potrafke (2012): government ideology impacts labor market regulation among Canadian provinces. • Bjornskov and Potrafke (2013): Republican governors deregulate labor markets. • Crowley et al. (2017): voting Republic in U.S. Congressional races predicts Economic Freedom of North America. • Crampton (2002): market-oriented political party manifestos predict Economic Freedom of the World.

  4. Botero et al. (2004) • Extension of previous World Bank data set. • Data represents the fraction of the time that both (a) the party of the executive and (b) the largest party in the legislature were either centrist or leftwing parties. • For years 1928-1995. • 85 countries; generally this is the binding constraint for which countries can be included. • Negative Coefficient => more conservative governments are associated with economic freedom

  5. What this paper is and what this paper isn’t • This data source is sparse – at most, a cross section of 85. • Other approaches are similarly constrained in terms of the extent of their identification. • Only Crampton (2002) has used international data to consider this question. • One benefit of this data is that it can be thought of as a very long run effect.

  6. Econometric Specification • LHS: Economic Freedom of the World • In 1995 (The Long Run “On Impact”) • In 2015 (The “Lasting” Long Run) • Standard control variables- • Education from Barro and Lee (2010) from 1970 • The earliest GDP per capita data available at World Development Indicators among the years 1970-1980 • Lagged Dependent Variable from 1975 • Using 1970 would simply compound sample size issues • Less standard control variables- • Focus on political institutions, so we can compare performance of ideology versus performance of other political variables • Polity IV average score, 1928-1995 • Legal Origins (British, Scandinavian, German, and Socialist, with French set as mean).

  7. TABLE 2. Results, Predicting Economic Freedom in 1995 (1) (2) (3) (4) (5) Political Ideology, -1.761*** -1.160*** -0.694* -0.269 -0.1941928-1995 (0.371) (0.349) (0.391) (0.337) (0.360) Education, 0.171*** 0.182** 0.219*** 0.186*1970 (0.053) (0.081) (0.054) (0.101) Polity IV, 0.017 0.012 -0.014 -0.0101928-1995 (0.022) (0.024) (0.029) (0.031) British Legal 0.181 0.050 -0.077 -0.059Origins (0.308) (0.276) (0.318) (0.336) Scandinavian Legal 0.833** 0.408 0.288 0.181Origins (0.341) (0.353) (0.322) (0.351) German Legal -0.301 -0.248 -0.278 -0.373Origins (0.241) (0.235) (0.242) (0.248) Socialist Legal -1.043*** -0.811** -0.530 -0.579Origins (0.337) (0.391) (0.354) (0.349) lnRGDP per capita, 0.097 0.071~1970 (0.154) (0.206) Economic Freedom, 0.283* 0.268*1975 (0.148) (0.156) Constant 7.204*** 6.225*** 5.287*** 4.506*** 4.096*** (0.371) (0.304) (1.027) (0.727) (1.348) 0.201 0.562 0.539 0.590 0.584 n 76 63 51 46 44

  8. TABLE 3. Results, Predicting Economic Freedom in 2015 (6) (7) (8) (9) (10) Political Ideology, -0.319 -0.343 -0.230 0.161 0.1131928-1995 (0.234) (0.224) (0.227) (0.291) (0.284) Education, 0.181*** 0.090 0.156** 0.0881970 (0.049) (0.085) (0.073) (0.105) Polity IV, -0.014 -0.013 -0.014 -0.0131928-1995 (0.021) (0.029) (0.029) (0.032) British Legal 0.302 0.396* 0.103 0.240Origins (0.223) (0.231) (0.257) (0.296) Scandinavian Legal 0.636** 0.360 0.229 0.153Origins (0.254) (0.231) (0.282) (0.286) German Legal 0.165 0.208 0.115 0.111Origins (0.224) (0.264) (0.245) (0.301) Socialist Legal 0.134 0.095 -0.039 -0.052Origins (0.264) (0.304) (0.280) (0.305) lnRGDP per capita, 0.236** 0.159~1970 (0.115) (0.178) Economic Freedom, 0.260 0.2401975 (0.155) (0.159) Constant 7.214*** 6.308*** 4.685*** 5.051*** 4.090*** (0.175) (0.207) (0.781) (0.705) (1.318) 0.013 0.390 0.481 0.490 0.509 n 85 68 52 46 44

  9. Discussion • There is some evidence of a positive effect of conservative political ideology of governments and more economic freedom. • This evidence disappears when the independent variable is lagged further out. • This would imply that if ideology has an effect, it peters out quickly. • On the other hand ideology as specified performs no worse in these specifications than legal origins or democracy.

  10. Conclusion • By itself, this paper is unable to find firm evidence that persuasively shows a positive effect of conservative ideology on economic freedom. • However, it contributes to a small literature that has consistently found positive effects regardless of how ideology is measured. • Taken together, this evidence supports the simplistic position that conservative ideology leads to more economic freedom, as opposed to the baseline analytical conclusion that the ideology of politicians does not matter.

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