Do Conservative Governments Make a Difference in Fiscal Policy? Evidence from the U.S. and the U.K.
In a recent paper, Ott, Belova, and Dolgopolov (2003) examined the effects of partisan politics on monetary policy for the United States and the United Kingdom (UK). They actually tested Secretary Simon's (1980) question "Do conservative governments make a difference in monetary policy!"l In his speech before the Mont Pelerin Society, William E. Simon developed his vision for the future of the nation in a program he called "An Action Program to Achieve National Goals." In this program, Simon elaborated on the use of monetary and fiscal policy to achieve the nation's goals (i.e., price stability, employment opportunity, economic and export growth and strong dollar). The program he put forth was quite comprehensive, one that required the coordination of national economic policies. Simon's action program consisted of five recommendations referred to as "rules." Rules 1, 2 and 3 were fiscal rules for addressing budget posture, the level of federal spending in relation to gross domestic product (GDP), and the tax burden. Rule 4 was the money rule, setting the growth rate of money, while rule 5 dealt with the scope of federal regulation. Simon's rule 4 was the focus of an Ott, Belova, and Dolgopolov (2003) paper. Simon's rules 1, 2, 3 and 5 are the focus of this paper. More specifically, we try to answer the question: "Do conservative governments make a difference in fiscal policy!" The next part of the paper offers a theoretical and empirical overview of the effects of partisan politics on fiscal policy along the lines of political cycles research. Section three formulates the. testable hypothesis and discusses data and methodology, while the fourth section presents the empirical results. The final section offers some concluding remarks.