1. Political Accountability and the Room to Maneuver Thomas Sattler ETH Zurich sattler@ir.gess.ethz.ch John Freeman University of Minnesota freeman@polisci.umn.edu Patrick T. Brandt University of Texas, Dallas pbrandt@utdallas.edu Meeting of the International Political Economy Society, Princeton, November 17-18, 2006

2. Introduction Most political scientists now agree that governments retain significant room to maneuver in a globalized economy. They assume rather than demonstrate that citizens are satisfied with policy choices and economic outcomes, i.e. political accountability exists in open democracies. We examine how much, if any, room to maneuver democratic governments actually retain.

3. Political scientists demonstrate the importance of economic outcomes for political approval. Economists analyze effects of economic policy with no provisions of accountability. Both ignore the endogenous relationship between the polity and the economy. Critique

4. A Genuine Political Economy Framework

5. Method: Bayesian Structural VAR Sample: United Kingdom 1981:11-1997:4, monthly Variables are in Three Groups Polity: Vote Intentions (VI); Prime Minister Approval (PA); Personal/Sociotropic Economic Expectations (PE/SE); Exogenous Electoral Counter Policy: Domestic and Foreign Interest Rates (IR and USIR) Economy: Domestic and Foreign CPI and Output (CPI and USCPI; IIP and USIIP); $/£ Exchange Rate (XR) Method and Data

6. Posterior Model Fit Summaries for B-SVAR models Model Fit

7. UK Interest Rate Response to Politics

8. Political Responses to Exchange Rate and Interest Rate Shocks

9. Domestic Real Economy Responses to Policy Shocks

10. Political Responses to Real Economic Shocks

11. Electoral Counter Densities

12. The accountability mechanism that we found works outside the real economy. Government capacity to shape real economic outcomes was limited in Britain from 1981 to 1997. Work in Progress: Analysis including British fiscal policy over the longer period to 2005: - Which role does fiscal policy play for political accountability? - How does delegation of monetary policy to the Bank of England in 1997 affect the government capacity to cope with globalization? Conclusion