Economic Freedom and Government Ideology across the German States

Abstract

Potrafke N. Economic freedom and government ideology across the German states, Regional Studies. This paper examines whether government ideology influenced economic freedom across the German states. The results show that in former West Germany rightwing governments promoted economic freedom, whereas leftwing governments confined it. In the former East Germany, however, rightwing governments were not associated with propagating economic freedom. This finding appears to conflict with the common notion of policy convergence at the federal level. In fact, the observed variation in political preferences across states may indicate that politicians gratify the local electorate and, in return, offer moderate policies at the federal level.

Potrafke N. 德国各州的经济自由与政府理念，区域研究。本文考察了政府理念如何影响德国各州的经济自由。结果表明，前西德右翼政府主推经济自由，而左翼政府则对此进行了否定。然而，前东德右翼政府并未对经济自由进行积极宣传干预。这一发现似乎有悖于联邦政府层面政策趋同这一普遍性认识。事实上，各州间政治倾向上的显著差异可能意味着政治家取悦地方选民举动，反过来也会为联邦政府层面提供相对缓和的政策。

经济自由 政府与政治理念 机构 德国政府 面板数据

Potrafke N. La liberté économique et l'idéologie du gouvernement à travers les états allemands, Regional Studies. Cet article cherche à examiner si, oui ou non, l'idéologie du gouvernement influe sur la liberté économique à travers les états allemands. Les résultats montrent que dans l'ex-Allemagne de l'Ouest, les gouvernements de droite ont favorisé la liberté économique, tandis que les gouvernements de gauche l'ont limitée. Cependant, dans l'ex-Allemagne de l'Est, les gouvernements de droite ne se sont pas associés à la promotion de la liberté économique. Il semble que ce résultat va à l'encontre des idées reçues sur la convergence de la politique au niveau fédéral. En effet, il se peut que la variation observée des préférences politiques à travers les états puissent indiquer que les hommes politiques gratifient l'électorat local et, en contrepartie, proposent des politiques modérées au niveau fédéral.

Liberté économique Idéologie politique du gouvernement Institutions États allemands Enquête à échantillon constant

Potrafke N. Wirtschaftliche Freiheit und Regierungsideologie in den verschiedenen deutschen Bundesstaaten, Regional Studies. In diesem Beitrag wird untersucht, ob sich die Regierungsideologie auf die wirtschaftliche Freiheit in den verschiedenen deutschen Bundesstaaten ausgewirkt hat. Aus den Ergebnissen geht hervor, dass rechtsgerichtete Regierungen in der alten Bundesrepublik Deutschland die wirtschaftliche Freiheit förderten, während linksgerichtete Regierungen sie einschränkten. In der ehemaligen DDR zeichneten sich rechtsgerichtete Regierungen hingegen nicht durch eine Förderung der wirtschaftlichen Freiheit aus. Dieses Ergebnis scheint der generellen Vorstellung einer politischen Konvergenz auf Bundesebene zu widersprechen. Tatsächlich könnten die beobachteten Unterschiede bei den politischen Präferenzen in den einzelnen Bundesstaaten darauf hinweisen, dass die Politiker die Wählerschaft auf lokaler Ebene zufrieden zu stimmen versuchen und deshalb wiederum auf Bundesebene gemäßigte Politiken anbieten.

Wirtschaftliche Freiheit Regierung und politische Ideologie Institutionen Deutsche Bundesstaaten Paneldaten

Potrafke N. Libertad económica e ideología gubernamental en los Estados alemanes, Regional Studies. En este artículo analizamos si la ideología gubernamental ha influido en la libertad económica en los Estados alemanes. Los resultados indican que en la antigua Alemania Occidental los Gobiernos de derecha fomentaron la libertad económica, mientras que los Gobiernos de izquierda la limitaron. Sin embargo, en la antigua Alemania Oriental los Gobiernos de derecha no estaban vinculados al fomento de la libertad económica. Estos resultados parecen entrar en conflicto con la noción común de convergencia política a nivel federal. De hecho, la variación observada en las preferencias políticas en los diferentes Estados podría indicar que los políticos gratifican al electorado local y, a su vez, ofrecen políticas moderadas a nivel federal.

Libertad económica Ideología política y gubernamental Instituciones Estados alemanes Datos de panel

Keywords:

• Economic freedom
• Government and political ideology
• Institutions
• German states
• Panel data

JEL classifications:

• D72
• O52
• R11
• R50

Acknowledgements

The author thanks Christian Bjørnskov, Heinrich Ursprung; the participants at: the Economic Workshop at the University of Tuebingen, February 2010, the Research Seminar at the German Institute for Economic Research (DIW Berlin), April 2010, and the Annual Meeting of the International Society of New Institutional Economics, Stirling 2010; and two anonymous referees for helpful comments and suggestions.

Notes

Belke (1996, 2000) examined partisan cycles on unemployment and inflation; Vaubel (1997a, 1997b) and Berger and Woitek (1997b, 2005) investigated monetary partisan cycles in Germany. Politicians do not directly have an influence on monetary policy aggregates, due to institutional restrictions, most notably central bank independence. In any event, government ideology has an influence on appointments to the council of the central bank. A political party may tend to nominate council members with political preferences similar to its own (Vaubel, 1993, 1997a). The nominated council members, in turn, may be loyal to the party that has appointed them (Goehlmann and Vaubel, 2007).

Schulze's (2008) results suggest that conservative politicians tend to spend more on research in relative terms. His sample, however, contained only sixteen observations.

Potrafke (2011) employed annual data and did not consider grand coalitions when coding the variable ‘Left’. In order to avoid missing values, the present authors coded grand coalitions as 0.5 on a left-to-right scale.

The number of k again depends on the specification (see below).

The empirical approach differs from Bjørnskov and Potrafke (2012) for two important reasons. First, there are no annual data available for economic freedom across the German states. Second, Fuest et al. (2009) have included tax revenues from income and corporate income taxes, although the state governments have no authority in setting tax rates. Fuest et al. pointed out that their index therefore tackled differences in economic freedom across states. The variation across states is, however, eliminated when growth rates of the economic freedom indicators are examined, so that employing levels in five- to four-year intervals is more appropriate.

The present author choose the Blundell–Bond (Blundell and Bond, 1998) estimator as the initial estimator in which the instruments are collapsed, as suggested by Roodman (2006). This procedure makes sure one avoids using invalid and too many instruments (for further details, see Roodman, 2006, 2009). Following Bloom et al. (2007), the present paper undertakes fifty repetitions of the procedure to bootstrap the estimated standard errors. Bootstrapping the standard errors is common practice when applying this estimator. The reason is that Monte Carlo simulations demonstrated the fact that the analytical variance estimator performs poorly for large coefficients of the lagged dependent variable (for further details, see Bruno, 2005b). The results do not change qualitatively with more repetitions such as 100, 200 or 500 or when the Arellano–Bond (Arellano and Bond, 1991) estimator is chosen as the initial estimator. However, the ideology-induced effects are much more pronounced when the Arellano–Bond estimator is chosen as the initial estimator and the t-statistics of the ideology variables somewhat decrease with more repetitions of the bootstrapped standard errors.

Data for GDP are available from 1970 onwards. In order to achieve real GDP per capita, these data are divided by the total population and the data are deflated by the German consumer price index at the federal level. The reason is that consumer price indices are not available for all German states for the entire time period. Including averaged GDP per capita and GDP per capita growth in the econometric model thus results in a smaller sample that starts in 1975. Data for unemployment rates are available from 1968 onwards for all former West German states. In order to use the L-Index in 1970, it is regressed on the average of the unemployment rates in 1968, 1969 and 1970. From 1975 onwards the L-Index is regressed on averaged unemployment rates over the last five or four years.

Spatial dependencies also influence voting patterns (for example, Cutts and Webber, 2010).

On the basic econometric models used to describe spatial interaction, see, for example, Anselin (1988); on applications with cross-sectional data, see Allers and Elhorst, 2005).

Consequently, business taxes appear to be a less qualified indicator of state governments' economic policy-making. The predominance of a political party has, however, affected policies not only in the states, but also the communities. The Christian Social Union (rightwing party) in Bavaria is a prime example. A great share of the mayors in the Bavarian communities have been members of the Christian Social Union. Leading party members such as mayors in communities often have leading positions in party committees at the state level and significantly influence a party's political ideology. State governments and prime ministers are, in turn, obliged to the political ideology of their party committees and vice versa. For this reason, state governments and leading party members at the state level are also likely to influence business tax rates.

On labour mobility and regional disparities in unemployment between East and West Germany, see Niebuhr et al. (2011).