Fiscal Consolidation Less Likely When Governments Fear Electoral Punishment

In a recent article published in the European Journal of Political Research, SPP Assistant Professor Evelyne Hübscher and University of Geneva Associate Professor Thomas Sattler explore the tension caused by government efforts to “implement unpopular fiscal consolidation packages in order to raise their macroeconomic credibility among financial investors.”

Contrary to the dominant view in current research, Hübscher and Sattler show that governments associate significant electoral risk with consolidation policies because electorally vulnerable governments strategically avoid the implementation of consolidation measures towards the end of the legislative term. Specifically, the likelihood that governments implement consolidation measures decreases from 40 percent immediately after an election to slightly more than 10 percent towards the end of the legislative term when governments’ margin of victory is small. Hübscher explains that their analysis concludes that most existing studies underestimate the electoral risk associated with consolidations because they ignore the strategic behavior of electorally vulnerable governments when timing unpopular reforms.

You can find the article here.