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.

Governments have great difficulties designing politically sustainable responses to rising public debt. These difficulties are grounded in a limited understanding of the popular constraints during periods of fiscal pressure. For instance, an influential view claims that fiscal austerity does not entail significant political risk. But this research potentially underestimates the impact of austerity on votes because of strategic selection bias. This study addresses this challenge by conducting survey experiments in Spain, Portugal, Italy, the UK and Germany. In contrast to previous findings, the results show that a government's re-election chances greatly decrease if it proposes austerity measures. Voters object particularly strongly to spending cuts and, to a lesser extent, to tax increases. While voters also disapprove of fiscal deficits, they weight the costs of austerity policies more than their potential benefits for the fiscal balance. These findings are inconsistent with the policy recommendations of international financial institutions.

This paper examines the capacity of governments to implement fiscal reforms in times of austerity. Unlike existing studies, which mostly focus on gradual policy changes like government spending, this analysis distinguishes between consolidation events and consolidation size to examine fiscal reforms. This strategy clarifies contradictory results in previous research and yields new insights into the underlying mechanism of fiscal reform. Based on an action-based data set that includes information about discretionary changes in taxation and government spending policies from 1978 until 2009 for 16 advanced (OECD) countries, the study shows that left and right governments are equally likely to implement cuts. Strategic considerations play a major role for the timing of fiscal consolidation, as the probability of fiscal cuts is highest at the beginning of the legislative term. When governments reform, the left cut as much as necessary, whereas right governments take the opportunity to reduce spending more

In recent decades, governments in many Western democracies have shown a remarkable consensus in pursuing fiscal austerity measures during periods of strained public finances. In this article, we show that these decisions have consequences for political polarization. Our macro-level analysis of 166 elections since 1980 finds that austerity measures increase both electoral abstention and votes for non-mainstream parties, thereby boosting party system polarization. A detailed analysis of selected austerity episodes also shows that new, small and radical parties benefit most from austerity policies. Finally, survey experiments with a total of 8,800 respondents in Germany, Portugal, Spain and the UK indicate that the effects of austerity on polarization are particularly pronounced when the mainstream right and left parties both stand for fiscal restraint. Austerity is a substantial cause of political polarization and hence political instability in industrialized democracies.

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Scholars have long struggled to understand why individual preferences for redistribution often diverge widely from their material self-interest. The puzzle is acute in Latin America, largely democratic and yet one of the most unequal regions in the world. Using an original online survey experiment spanning 8 countries and 12,000 respondents across Latin America, we find significant evidence for an under-explored explanation: misconceptions regarding the distributional effects of current tax policy. Treated respondents who are informed that an increase in the value-added tax (VAT) is regressive are significantly more likely to prefer policy reforms that make the tax more progressive. We are further able to identify mechanisms. A large fraction of respondents underestimate the regressivity of the VAT. Their misperceptions are linked to fundamental views about the world: these respondents are disproportionately right-leaning and more likely to attribute success to individual effort than luck. Despite the deep-rooted nature of their misperceptions, treatment effects are largest among individuals who believe the VAT is not regressive. These findings contribute both to understanding the political economy of redistribution and the potential for information interventions to shift support for fiscal adjustment policies protecting the most vulnerable.

Fiscal policy is an integral part of a country’s growth model. This chapter shows how governments subordinate their fiscal policy to the macroeconomic regime of their country: governments in export-led economies are two to three times more likely to pursue fiscal austerity than those in demand-led regimes. These rigid fiscal policies in many countries are not in line with voter attitudes and individual-level macroeconomic beliefs. Contrary to the economic ideas that provide the intellectual foundation of fiscal austerity, voters believe that these policies are detrimental to economic growth, but there is great variation between left and right voters. These ideological differences translate into distinct fiscal policies under left and right governments in balanced growth regimes, but not in unbalanced regimes. These results point to a mismatch between government policy, especially in export-led economies, and voter attitudes. This mismatch potentially contributes to the disillusionment of voters that has been observed in many countries.