Falling rates, rising partisanship effect: why market competition becomes associated with left governments in an era of low interest rates

Abstract Scholars argue that while left partisan governments traditionally support stronger market regulation, this partisanship effect has started to vanish as left governments converge with the right in supporting deregulation, resulting in higher inequality. This paper argues that, instead of vanishing, the partisanship effect has intensified , but in a novel direction: left governments have become stronger defenders of market competition than other partisan governments . Furthermore, this new association between left partisanship and market competition has delivered new distributive gains for labor. I highlight the depressed interest rates across the rich world today in driving this outcome: low rates spark a rise in market concentration, which puts downward pressure on the labor share of income. By boosting market competition, left governments can counter this force and defend the labor share of income, thus revitalizing redistribution for a more difficult economic era. These claims are tested using data from 10 to 17 Organization for Economic Cooperation and Development (OECD) countries (1995–2017).