The Open Politiconomy: A Dynamic Analysis of Social Democratic Popularity and Economic Policies in Scandinavia

Abstract

The political economy literature has not considered in detail the dynamic interrelationship between one politico-economic system and another. To fill this lacuna, the author uses a VAR model to study the relationship between social democratic popularity and the economy not only within but also between the Scandinavian countries. In addition to the expected macroeconomic interdependence, there is empirical support for the traditional partisan theory. Economic voting is found only in Denmark. Social democratic popularity is not much affected by the economy, but it is found that the economy is influenced by social democratic popularity. An increase in the popularity of the social democrats eventually causes higher inflation. In particular, the popularity of the Swedish Social Democrats creates inflationary pressure in Sweden, and this pressure is exported to Denmark and Norway as well.