Inflation, Unemployment, and Government Collapse

Abstract

As democracies enter an era of economic retrenchment, the political costs associated with economic decline have come under close scrutiny by students of comparative politics and public policy. Of particular concern is the linkage between inflation, unemployment, and the collapse of incumbent governments. The present study provides an initial application of an alternative approach to measuring this linkage across 8 European democracies, and offers significant evidence linking political costs for cabinet governments with rising prices and the growing unemployment. By utilizing the Poisson method of determining probabilities of discrete events, increasing probabilities of government collapse are significantly associated with rising inflation and unemployment in European democracies between January 1958 and December 1979. Subsequent use of the Sanders and Herman's (1977) and Warwick (1979) analyses of cabinet stability provides a useful means to disaggregate the nation sample of the study into four discrete subsets of nations. After applying the model developed in the current study to these separate subsets, it is concluded that the more significant the change in rates of inflation and unemployment, the more likely the pattern of government collapse will be interrupted by the unexpected termination of an incumbent regime.