Forms of political economy, growth cycles and government action: public spending in Portugal (1974-2022)

Within Portugal’s evolution as a peripheral European economy, four distinct forms of political economy, four growth cycles, and two alternating governmental coalitions can be identified. This paper examines how these elements have shaped the trajectory of public expenditure since the Carnation Revolution of 1974, assuming the partial autonomy of politics and economy and the varying role of the public sphere. Contrary to public choice theory—which reduces the state to the utility-maximising behaviour of self-serving political agents—this analysis adopts a régulationist perspective, linking the state’s role in development trajectories to dominant social blocs and the institutional forms structuring the economy and society. The evolution of the public expenditure-to-GDP ratio is examined using descriptive statistics, structural break analysis, and Structural VAR techniques, leading to four main conclusions. First, major shifts in the ratio are best explained by the prevailing forms of political economy. Second, most variations in the ratio are difficult to reconcile with a mechanical link to output fluctuations, underscoring the relevance of political deliberation. Third, although Portuguese authorities generally adopted a countercyclical fiscal stance, this behaviour was relatively weak during the country’s structuring phase. A more evident countercyclical pattern emerged after monetary integration, albeit shaped by the prevailing institutional context. Finally, contrary to widely held assumptions, right-wing governments have not consistently reduced public expenditure; instead, it was often the left that led fiscal consolidation efforts.