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Electoral Cycles: Strategic Timing of Austerity Measures in Western Europe

Thu, August 30, 11:00 to 11:30am, Hynes, Hall A

Abstract

This paper investigates whether governing parties strategically time austerity policies to make electoral gains. The timing of policy and reforms has long been of interest in the political economy literature. Given the desire of incumbent governments to be re-elected and the recency bias of voters, researchers have suggested that governments strategically time their policy-making to increase electoral support in the run-up to elections. As economic factors are central for vote choice, analyses of political cycles have been pioneered by the political business and budget cycles literature, suggesting that governments boost the economy or increase spending prior to elections in order to win additional votes.

However, economic policy outcomes and spending levels are not always in direct control of governments. In particular, governments have only limited control over the economy and improving it just in time for the election is challenging, especially for countries that are strongly integrated into the global market. Also, while fiscal matters are decided by the government, budget deficits and government spending levels can change not only when governments decide to do so, but also as a result of various external factors outside of governmental reach, such as increased unemployment.

To overcome these challenges, and analyze direct actions of political opportunism, we suggest focusing on governmental policy decisions. We contribute to the literature on policy cycles by applying its general logic to the legislative realm. Here, we investigate the strategic timing of governmental austerity reform measures using an unprecedented time-series cross-sectional dataset on substantive taxation and social policy reform measures introduced in 13 Western European countries over a period of 20 years (1985– 2005). In contrast to earlier literature on legislative cycles, we concentrate on important governmental austerity reform measures rather than the volume of legislation. This allows us to analyze reforms measures which introduce direct costs on voters and are likely to be visible to them.

We argue that governments may be interested in introducing spending cuts and tax increases early in the legislative cycle for a number of reasons. First, voters are biased towards recent events and governments may seek a ‘washout period’ for the negative effects of significant austerity measures and election campaigns. Second, parties in government may seek to shift responsibility for the necessity of austerity measures to the previous government. We develop the latter argument by introducing conditional hypotheses suggesting that electoral cycles in austerity reform making should be most pronounced when there is a change of cabinet leadership, which we capture by taking into account whether the government has a new prime minister or not. In addition, we suggest that certain government types face less complex bargaining situations which enable them to act swiftly and use the short window of opportunity after assuming office to time reforms strategically. Some governments thus have an institutional advantage to time austerity measures to their benefit. Specifically, we argue that minimal winning governments should face lower bargaining complexity compared with minority and oversized cabinets.

Our analyses reveal that parties in government clearly time austerity reform measures strategically. We find that governments introduce policy reforms that impose direct monetary costs on voters early on in the legislative term with a decreasing probability towards elections. We also find support for the ‘ability’ and the ‘responsibility shifting’ arguments. We show that minimal winning cabinets with new prime ministers, that is, governments which face less complex bargaining environments and are able to credibly shift the responsibility to the preceding government, are most likely to introduce austerity measures with decreasing probability towards elections.

The paper contributes to the literature on political electoral cycles by showing that governments time austerity reforms strategically to diminish their electoral costs. Furthermore, our findings have direct implications for voting behavior and democratic representation. Knowing that governments strategically time austerity measures and when they are more likely to do so should provide voters with a better understanding when to rely on recent policy events and when to consider the whole legislative term in their economic voting decisions. In particular, our findings suggest that taking into account only the recent policy output of the government at the wake of elections may jeopardize electoral accountability, as governments strategically time their reforms for electoral benefit.

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