Are governments paying a price for austerity? Fiscal consolidations reduce government approval

Olivier Jacques,Lukas Haffert

doi:10.1017/s1755773921000035

Abstract

AbstractWhat are the political effects of fiscal consolidations? Theoretical considerations suggest that consolidations should reduce the public’s support for their governments, but empirical studies have found surprisingly small effects on government support. However, most of these studies analyze electoral outcomes, which are separated from the consolidation by a multi-link causal chain. We argue that more direct measures of government support, such as executive approval, show much stronger negative effects of consolidation, since they are less affected by the strategic timing of consolidations or the political alternatives on offer. We analyze a time series cross-sectional dataset of executive approval in 14 Organization for Economic Co-operation and Development (OECD) countries from 1978 to 2014, using the narrative approach to measure fiscal consolidations. We find that spending cuts decrease government approval, especially during economic downturns, but tax increases’ impact on approval remains minimal. Finally, left- and right-wing governments are equally likely to lose approval after implementing austerity.

Highlights

When reflecting about the political consequences of economic and fiscal reforms, the former president of the European Commission, Jean-Claude Juncker, once famously said that ‘we all know what to do, but we don’t know how to get re-elected once we have done it’ (Buti et al, 2009)
We argue that more direct measures of government support, such as executive approval, show much stronger negative effects of consolidation, since they are less affected by the strategic timing of consolidations or the political alternatives on offer
Governments care about re-election, not about approval. While this is true to some extent, we argue that a loss of approval has a direct cost to governments as it is a crucial form of political capital for the executive in both parliamentary and presidential systems (2015)

Summary

Introduction

When reflecting about the political consequences of economic and fiscal reforms, the former president of the European Commission, Jean-Claude Juncker, once famously said that ‘we all know what to do, but we don’t know how to get re-elected once we have done it’ (Buti et al, 2009). We argue that more direct measures of government support, such as executive approval, show much stronger negative effects of consolidation, since they are less affected by the strategic timing of consolidations or the political alternatives on offer.

Results

Conclusion