Counter-cyclical budget policy across varieties of capitalism

• We investigate whether LMEs have more accommodating fiscal policies than CMEs.
• We use time-series cross-section data on 18 OECD countries between 1980 and 2009.
• We test the reaction of discretionary fiscal policy to macroeconomic shocks.
• Results are that CMEs’ fiscal policy is more counter-cyclical than LMEs’.

The role of macroeconomic policy in the different varieties of capitalism has been largely ignored. Recent contributions to the literature have argued that nonliberal economies, i.e. coordinated market economies, should be expected to have less accommodating (i.e. less counter-cyclical) macroeconomic policies than liberal varieties. Using time-series cross-section data on 18 OECD countries between 1980 and 2009, this paper tests that hypothesis and, more particularly, whether the reaction of discretionary fiscal policy to macroeconomic shocks is different between liberal and nonliberal varieties of capitalism. The test results do not support the conclusion that nonliberal economies’ macroeconomic policy would be less counter-cyclical than that of liberal economies. On the contrary, discretionary fiscal policy has been more counter-cyclical in former economies.