Economic performance of ‘weak’ governments and their interaction with central banks and labour: Deficits, economic growth, unemployment and inflation, 1961–1998

Abstract

Abstract. Comparative political economists have conventionally claimed that the strength and stability of governments affect policy making and performance, and that what they call ‘weak governments’– multiparty, minority and short‐lived governments – show poorer economic performance. This article tests this and related hypotheses on deficits, economic growth, unemployment and inflation by examining data from 17 OECD countries. I find that there is generally little evidence to indicate that so‐called ‘weak governments’, when considered independently, produce poorer performance than strong ones. However, the effects of different government types are partly contingent on central bank independence and labour organization. When central banks are independent, coalition governments exhibit better inflation and economic growth performance than one‐party governments, but the opposite happens when central banks are dependent. I attempt an explanation for these relationships. I also find that independent central banks, under certain conditions, lead to lower growth and higher inflation. Thus, some of the benefits of central bank independence are context‐specific, depending on other political‐economic factors.