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Fiscal consolidation under electoral risk

Hubscher, Eveline and Sattler, Thomas (2017) Fiscal consolidation under electoral risk. European Journal of Political Research, 56. pp. 151-168. ISSN 0304-4130

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Identification Number: 10.1111/1475-6765.12171

Abstract

The European debt crisis has uncovered serious tension between democratic politics and market pressure in contemporary democracies. This tension arises when governments implement unpopular fiscal consolidation packages in order to raise their macroeconomic credibility among financial investors. Nonetheless, the dominant view in current research is that governments should not find it difficult to balance demands from voters and investors because the economic and political costs of fiscal consolidations are low. This would leave governments with sufficient room to promote fiscal consolidation according to their ideological agenda. This article re‐examines this proposition by studying how the risk of governments to be replaced in office affects the probability and timing of fiscal consolidation policies. The results show that governments associate significant electoral risk with consolidations because electorally vulnerable governments strategically avoid consolidations towards the end of the legislative term in order to minimise electoral punishment. Specifically, the predicted probability of consolidation decreases from 40 per cent after an election to 13 per cent towards the end of the term when the government's margin of victory is small. When the electoral margin is large, the probability of consolidation is roughly stable at around 35 per cent. Electoral concerns are the most important political determinant of consolidations, leaving only a minor role for ideological concerns. Governments, hence, find it more difficult to reconcile political and economic pressures on fiscal policy than previous, influential research implies. The results suggest that existing studies under‐estimate the electoral risk associated with consolidations because they ignore the strategic behaviour that is established in this analysis.

Item Type: Article
Official URL: https://blogs.lse.ac.uk/internationalrelations/201...
Additional Information: ©2016 European Consortium for Political Research
Divisions: International Relations
Subjects: J Political Science > JZ International relations
Date Deposited: 12 Dec 2019 12:36
Last Modified: 20 Jun 2020 02:56
URI: http://eprints.lse.ac.uk/id/eprint/102882

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