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Estimating Government Discretion In Fiscal Policy Making

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Executive Summary

Varieties of Capitalism (VoC) is a relatively new approach to describe macroeconomic differences across countries, classifying them into Coordinated Market Economies (CMEs) and Liberal Market Economies (LMEs). VoC already had a significant impact on the field but has been criticised for its lack of linkage to political systems. Recent studies focused on the similarities between CMEs and the Lijphartian consensus political systems, and LMEs and majoritarian political systems. One of the practical consequences of this classification is that governments in LMEs should enjoy more discretion over fiscal policy while governments in CMEs are more constrained in their decisions.

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