Austerity and Elections

By Alberto Alesina, Gabriele Ciminelli, Davide Furceri, Giorgio Saponaro

April 30, 2021

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Alberto Alesina, Gabriele Ciminelli, Davide Furceri, and Giorgio Saponaro. Austerity and Elections, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Conventional wisdom holds that voters punish governments that implement fiscal austerity. Yet, most empirical studies, which rely on ex-post yearly austerity measures, do not find supportive evidence. This paper revisits the issue using action-based, real-time, ex-ante measures of fiscal austerity as well as a new database of changes in vote shares of incumbent parties. The analysis emphasizes the importance of the ‘how’—whether austerity is done via tax hikes or expenditure cuts—and the ‘who’—whether it is carried out by left- vs. right-leaning governments. Our main finding is that tax-based austerity carries large electoral costs, while the effect of expenditure-based consolidations depends on the political-leaning of the government. An austerity package worth 1% of GDP, carried out mostly through tax hikes, reduces the vote share of the leader’s party by about 7%. In contrast, expenditure-based austerity is detrimental for left- but beneficial for right-leaning governments. We also find that the electoral cost of austerity—especially tax hikes—can be contained if it is implemented during good economic times.

Subject: Commodities, Expenditure, Government debt management, Public financial management (PFM), Tax expenditures

Keywords: Austerity package, Construction of Austerity variable, Economy to Austerity, Expenditure cut, Government debt management, Tax expenditures, Yearly austerity

Publication Details

Pages:

70
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/121
Stock No:

WPIEA2021121
ISBN:

9781513573724
ISSN:

1018-5941

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