Words speak louder than actions: The impact of politics on economic performance

In this paper, a new approach to disclose the impact of politics on economic growth is presented: data derived from content analysis of party manifestos is used as measures of party preferences. In a panel of 23 OECD countries, a positive impact of party support for various market-liberal policies on economic performance can be detected. In particular, I show that parties which were more concerned with market interventions and - to a lesser extent - welfare state policies impacted on growth negatively; those which proposed incentives for business as well as technology and infrastructure had a positive impact. Moreover, the robustness of the results is demonstrated in a model averaging framework.

► I study partisan effects on the economic performance of OECD countries. ► A simple left-right classification of government ideology shows no significant effect. ► I use data on political preferences derived from content analysis of party manifestos. ► Party support for market-liberal policies affects economic performance positively. ► Support for market interventions and welfare state policies affects it negatively.