ECONOMY

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now weigh demands for redistribution and public spending against potential new
economic costs associated with the pursuit of interventionary policies—namely the
risks of reduced competitiveness and an increased risk of capital flight associated with
high levels of taxation and regulation. The outcome of this process clearly depends
critically on the structure of political incentives facing state actors.
Empirical examinations of the extent of the constraints under which governments
operate in the pursuit of supply-side strategies have produced mixed results. The
most consistent empirical result in this area is the observation of a large degree of
structural continuity over time. In the areas of welfare and labor market policy, for
example, several authors provide convincing evidence of the long-term persistence
of social democratic, Christian democratic, and neoliberal “regime types” and their
continued influence on economic outcomes, in the face of increased economic openness
(Esping-Andersen 1990; Pierson1994, 2001; IversenandWren1998; Huberand
Stephens 2001).
The task of establishing the independent economic effects of current government
partisanship and inherited institutional structures has proved more difficult for
methodological reasons. High levels of correlation between many key variables—
such as, for example, the degree of centralization of wage-bargaining institutions, the
strength of social democratic welfare state regime “characteristics,” and the current
and historical electoral strength of social democratic parties—enhanced by the small
size of the sample on which most empirical investigations have focused (eighteen
or fewer OECD nations over a period of thirty or forty years), create problems of
multicollinearity in the conduct of cross-national regression analyses. 4 As a result,
measures of the independent effects of theoretically relevant institutional variables are
omitted from many analyses. Unfortunately these problems have tended to restrict
our ability to separate the influence of democratically elected governments on economic
activity from that of the socioeconomic institutional environment in which
they operate.
2 State Structures and State Actors:
The Role of Governments
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In spite of challenges to Tufte’s original characterization of the nature of political
control of the economy, therefore, developments in the comparative political economy
literature over the last three decades have served to reaffirm the instrumental
capacity of the state to influence economic outcomes. At the same time, as described
in the last section, analyses of government intervention on both the demand and the
supply sides of the economy have increasingly emphasized the contingency of their
effectiveness on the structure of the socioeconomic institutions of the state. These
⁴ See Huber and Stephens 2001 for a careful discussion of these issues.