G08 - Political Economy of Public Finance in an Era of Permanent Austerity 1
Date: Jun 3 | Time: 08:45am to 10:15am | Location:
Chair/Président/Présidente : Olivier Jacques (McGill University)
Discussant/Commentateur/Commentatrice : Kyle Hanniman (Queen's University)
Session Abstract: Public finances are under strain in most industrialized economies. Aging, low growth and post-industrial social changes put an upward pressure on expenditures, while tax competition and lower productivity growth weakens governments’ capacity to raise revenues without provoking public resistance. OECD countries are in a prolonged era of “permanent austerity”, as governments maintain a tight fiscal room to maneuver. How are governments adapting their public finances to austerity? What is the impact of austerity on welfare states, labour market protection and tax policies? How do citizens react to austerity? This panel is divided in two related sessions of four papers each. The first session regroups four papers on the impact of austerity. Focusing on the political consequences of austerity, Haffert and Jacques analyze the impact of different types of fiscal consolidation measures on government approval, challenging the conventional wisdom suggesting that austerity has no impact on government’s chances of re-election. Tellier examines how various political parties in different provinces have defined and justified the need to implement budget austerity and analyze how budget austerity was implemented once these parties were elected. Evans and Whiteside describe how austerity led to public sector restructuring and analyze budget plans and fiscal narratives of Canada, Denmark, Ireland, and Spain in the post-2008 period. Finally, McBride and Peters do a comparative case study of the same four countries to depict the spread of low-wage labour in the post-2008 period caused by the flexibilization and deregulation of labour markets and the weakening of social partnerships.
Getting away with murder? The impact of austerity on government approval.: Olivier Jacques (McGill University), Lukas Haffert (University of Zurich)
Abstract: What is the impact of austerity on governments’ approval? Several studies have found that government’s likelihood of reelection is not affected by fiscal consolidations (Alesina 1998; 2011; Alesina et al. 2019), suggesting that in an era of permanent austerity (Pierson 1998) governments can implement fiscal consolidations with impunity. However, other studies argue that parties with a positive welfare image, such as Social-democratic or Christian-democratic parties, are punished when they implement cutbacks (Arndt 2013; Schumacher et al. 2013). Most of these studies analyze vote shares of the incumbent as a dependent variable, which is problematic since governments strategically time fiscal consolidation at the start of their mandate in order to minimize electoral risk (Hubscher 2016; Hubscher and Sattler 2017). Moreover, votes for the incumbent depend on the strength of opposition parties and limit the length of the time series because they are only measured at each election, leading to potentially spurious regressions. We create an original time series cross sectional dataset of the net approval rate of the executive in 17 OECD countries from 1978 to 2015, using the Executive Approval dataset, supplemented by other country sources. Using the IMF’s narrative approach to fiscal consolidation to identify the size and frequency of consolidation episodes, we find that episodes of fiscal consolidation decrease the net approval rate of the government, conditional on the clarity of responsibility offered by political institutions. We also study differences between tax- and spending-based consolidations and test whether the effects differ between left-wing and right-wing incumbents.
Is austerity gaining popularity in Canadian provinces? Looking back at recent provincial elections promises and outcomes: Geneviève Tellier (Université d'Ottawa)
Abstract: The word “austerity” has gained much attention in Canada in recent years. For instance, many provincial parties have promised during electoral campaigns that they would bring back fiscal prudence in the management of public money, which included restoring balanced budgets among other things. Many of these parties subsequently gained power: The Liberal Party under the leadership of Philippe Couillard in Québec in 2014, Doug Ford’s and Blain Higgs’s Conservative Party in Ontario and New Brunswick in 2018, and Jason Kenney’s in Alberta in 2019.
The purpose of this presentation is twofold. First, it will examine how various political parties in different provinces have defined and justified the need to implement budget austerity and restore prudent fiscal management. Second, it will analyze how budget austerity was implemented once these parties were elected. Our objective is to verify if they exist some common features observed across various provinces in Canada. Our analysis will examine both the narrative presented by political parties (and their leaders) during and after the elections and the choice of instruments they decided to use to implement their policy. The study will focus on the four cases identified above (New Brunswick, Québec, Ontario, and Alberta).
The Political Economy of Austerity, Public Sector Restructuring, and Public Money: Bryan Evans (Ryerson University), Heather Whiteside (University of Waterloo)
Abstract: This paper approaches the political economy of austerity in two parts: public money and public sector restructuring. First, we take up an historical observation that the 1980s/90s mark a period of growing pressure to repurpose the domestic state by restraining public sector spending and the introduction of managerialism (New Public Management) as a framework for public sector organizations advocated to reduce the public sector’s share of GDP. Government ‘steering’ rather than ‘rowing’ came to favour contracting-out, commercialization, asset shedding, public-private partnerships, and other forms of privatization. Next, we analyse the budget plan and fiscal narratives of Canada, Denmark, Ireland, and Spain in the post-2008 period through a political economy lens whereby fiscal policy, public sector spending, cuts, and reallocations, are seen to be intrinsically political activities that fundamentally contour the state-society relationship through revenue and expenditure changes (or lack thereof). Through this we seek to historicize 2008 and its aftermath by examining the fiscal context and its discourse, budget framing, and associated privatization of the public sector through reallocation, redistribution, and withdrawal.
Austerity-Induced Labour Market Flexibility, Restructuring, and Precarity: Stephen McBride (McMaster University), John Peters (Laurentian University)
Abstract: Not only was the 2008 global financial crisis and its long term impact on labour relations and markets in Canada, Demark, Ireland, and Spain quite varied, so too is the legacy of decades of neoliberalism, their embrace of the global economy, and their need to adapt. Their trajectories, both then and now, however, have been shared: increasing flexibility, insecurity, and precarity, with labour market policy favouring a ‘competition state’ approach. Here we examine two different modes of austerity-era reform, both direct (e.g., an end to social partnership) and indirect (i.e., a lack of regulatory enforcement) that these countries have used to expand non-standard employment. We also explore the growing corporate resort to non-standard employment contracts, and government policy responses that have abetted the spread of low-wage labour – especially in private services and agriculture – through the economic policies that have allowed multinational corporations to expand by using lower-cost suppliers as well as increase their hiring of lower-cost labour through franchises, temporary agencies, and subcontractors across countries.