The Politics of Fiscal Austerity: Implications for the United States

As austerity becomes the new normal for advanced nations, questions are raised about whether nations can make the hard choices necessary to bring about a sustainable fiscal future. The political defeat experienced by so many European governments undertaking fiscal consolidations points to the vulnerabilities that leaders will face. This article shows that how some Organization of Economic Cooperation and Development (OECD) nations have survived the daunting politics of fiscal consolidation by timing actions for periods of economic recovery and political honeymoons following elections and by pursuing deficit reduction strategies that emphasize broad sweeping changes yielding high potential for dramatic economic gains over the longer term. Unlike many European nations today, the seemingly endless appetite for US treasuries by worldwide markets give the United States the luxury of choosing to begin deficit reduction only when the economy strengthens. However, the absence of market pressure also reduces the sense of urgency, consigning national leaders to create internal crises such as the 2012 “fiscal cliff” to force their own hand. While the polarized politics characterizing our party system does not bode well for concerted fiscal action, divided government carries the potential for spreading political risks and promoting more sustainable fiscal outcomes, as it has in our recent history and in other nations as well.     

Transparency, Political Polarization, and Political Budget Cycles in OECD Countries

We investigate the effects of fiscal transparency and political polarization on the prevalence of electoral cycles in fiscal balance. While some recent political economy literature on electoral cycles identifies such cycles mainly in weak and recent democracies, in contrast we show, conditioning on a new index of institutional fiscal transparency, that electoral cycles in fiscal balance are a feature of many advanced industrialized economies. Using a sample of 19 OECD countries in the 1990s, we identify a persistent pattern of electoral cycles in low(er) transparency countries, while no such cycles can be observed in high(er) transparency countries. Furthermore, we find, in accordance with recent theory, that electoral cycles are larger in politically more polarized countries.     

Can Democratic Governments Save? Experiences of Countries with Budget Surpluses

It has long been held that it is difficult for advanced democracies to achieve and sustain continued fiscal restraint. The benefits of such restraint are diffuse, and as a result restraint will generally lose out to spending increases and/or tax cuts that are supported by organized political agents. However, our study of other nations that have achieved budget surpluses makes the case that it is possible for an advanced democracy to achieve consensus on the need for continued fiscal restraint during a period of surplus. To some extent, the design of budget processes in these nations has played a critical role in encouraging fiscal discipline. But even more importantly, these nations demonstrate that ideas matter and that the ability to sustain fiscal discipline is related to the ability of decision makers to reframe the budget debate in terms of broader national goals. However, it is unclear how long this new consensus will last, and many competing policy ideas wait in the wings to spring forth when economic and political circumstances shift.     

Budget Process Reform: Waiting for Godot

The unraveling of the budget process described by Irene Rubin will have extraordinary consequences for the long-term budget outlook facing the nation. The retirement of the baby boom generation will prompt unprecedented and unsustainable structural fiscal imbalances for decades to come. Early policy action on the spending and revenue sides of the budget is critical to avert fiscal and economic crisis and to phase in changes in order to avoid precipitous and politically perilous actions in the future. Yet such actions constitute what amounts to a politically unnatural act, as one generation of political leaders is asked to make sacrifices in current policies benefiting future generations. Budget process reforms can serve to highlight the salience of these issues and help deal with the significant political hurdles faced by decision makers in making these intertemporal budgeting trade-offs. Ironically, the need for budget rules and processes has intensified as policy makers have become more vulnerable to polarized political parties, ever more watchful media, and mobilized interest groups. Budget rules and processes can help policy makers cope by protecting their ability to make the hard choices that will be necessary. The pressures for budget process reform will accelerate as the current financial crisis increases near-term budgetary pressures, promoting greater alignment between near-term and long-term fiscal problems.     

The Rationality Crisis in US Higher Education

Over the course of the last century, many of the stresses and contradictions of advanced capitalism have been displaced onto colleges and universities, which are now directly attached to the state—whether legally, politically, or financially—as an important component of the ideological and economic state apparatuses. As a component of the ideological and economic state apparatuses, the university is implicated in the state's ongoing fiscal crisis as both a cause of the crisis and a solution to the crisis. The author argues that the possibilities for crisis management within the existing corporate model of higher education have been exhausted in a rationality crisis that threatens to implode the administrative apparatus in higher education. The author calls for a radical reconstruction of power relationships within the university and in its relationships to capital and the state.     

Fiscal consolidation under electoral risk

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.     

Economic Perceptions and Executive Approval in Comparative Perspective

Controversy exists over whether people use retrospective or prospective economic perceptions when evaluating their political leadership. In this article, I argue that the structure of the political-economic system affects which type of economic perception people employ. Specifically, in established democracies with developed economies, people will employ prospective assessments. In contrast, in nations with less well-established democratic systems and less developed economies, people will employ retrospective reasoning. They do so because under such conditions uncertainty about the future is too high for them to make reliable prospective assessments. I test this hypothesis on aggregate survey data taken from 41 nations in 2002. Support for the hypothesis is found. The conclusion puts the findings into perspective and discusses directions for future research.     

Fiscal consolidation and economic growth in India: Do policymakers need to shift focus from quantity to quality of fiscal adjustments?

This paper evaluates the impacts of fiscal consolidation programmes and their composition on the growth rate of national income for Indian economy. More specifically the study tries to address two questions that is, composition of consolidation and its resultant impact on growth rate of income and the relative desirability of alternative sources of deficit financing that is, internal versus external borrowing. The study employed time series data from 1990–1991 to 2017–2018 and used the technique of ordinary least square and generalized method of moments. The study finds that, in long run, fiscal consolidation need not be necessarily recessionary in nature. Moreover, the composition of consolidation was found to have a significant impact. The study could not extend empirical support in favour of back‐loaded (spending financed) consolidation design as has been established for advanced economies. Moreover the study could not establish the negative impacts of revenue funded (both tax and non‐tax) fiscal consolidation on the growth rate of economy. The study documented that it is desirable to target expenditures such as subsidies, transfers and interest payments to infuse more discipline. A judicious mixture of both spending cuts and revenue increase may be a better strategy to consolidate in order to have better returns. The study highlighted that the external source of deficit financing is always costlier against the internal borrowings. The study noted that it is imperative on part of policymakers to shift their focus from quantity to the quality of deficits and the resultant consolidation programmes.     

Lack of European Identity and the Failure of the Eurozone

Since late 2007, the Eurozone has been embroiled in a crisis that has seen GDP per capita stagnate, public debt soar, and unemployment reach record levels. This article argues that the Eurozone crisis will inevitably force fundamental changes in the structure of the EU. The only way to make the Eurozone work is through deeper fiscal integration of Eurozone economies. Yet wholesale fiscal integration cannot be achieved in the near term, due to the fact that EU citizens continue to identify more with their own nationalities than with Europe as a whole. The Eurozone economies of southern Europe will, therefore, continue to flounder, leading to further anti‐EU sentiment. Anti‐EU sentiment may eventually increase up to the point where one or all of these countries leave the Eurozone or the EU altogether. These propositions are supported with arguments from economic theory, and are bolstered by evidence from surveys and opinion polls.     

Partisan Politics,Globalization, and the Determinants of Privatization Proceeds in Advanced Democracies (1990–2000)

The 1990s have witnessed unprecedented attempts at privatizing state‐owned enterprises in virtually all OECD democracies. This contribution analyzes the extent to which the partisan control of the government can account for the differences in the privatization proceeds raised by EU and OECD countries between 1990 and 2000. It turns out that privatizations are part of a process of economic liberalization in previously highly regulated economies as well as a reaction to the fiscal policy challenges imposed by European integration and the globalization of financial markets. Partisan differences only emerge if economic problems are moderate, while intense economic, particularly fiscal, problems foreclose differing partisan strategies.     

Self-Interest, Ideological/Symbolic Politics, and Citizen Characteristics: A Cross-National Analysis of Support for Privatization

In this essay, the authors explore attitudes toward government privatization of electric utilities across two sets of nations: developed market economies (DMEs) and transition economies (TEs). They utilize generalized hierarchical linear model to analyze individual attitudes nested within these two groups of polities and discover a wide gap between the DME and TE nations in terms of preferences for privatization, with attitudes in DME nations being far more favorable. Attitudes toward the privatization of electricity are explained by a combination of ideological/symbolic predispositions, self-interest, and citizen values/characteristics. The most consistent variables in the model are the ideological/symbolic predispositions, while the weakest are citizen characteristics/values. In terms of self-interest, the analysis indicates that those who work for the public service or a public firm are more likely than others to oppose the privatization of electricity. In contrast to some public administration literature that asserts well-informed and interested citizens will oppose privatization, the authors find no convincing relationships. Instead, the most educated and politically efficacious citizens, as well as those who have confidence in the way democracy works within their nation, are more prone than others to support privatization of electricity.     

Ausverkauf des „Tafelsilbers“: Bestimmungsfaktoren der Privatisierungserlöse in EU- und OECD-Staaten 1990–2000

The 1990s have witnessed unprecedented attempts at privatising state-owned enterprises in virtually all OECD democracies. This contribution analyzes the differences in the privatisation proceeds raised by EU and OECD countries between 1990 and 2000. It turns out that privatisations are part of a policy of economic liberalisation in previously highly regulated economies as well as a reaction to the fiscal policy challenges imposed by European integration and the globalisation of financial markets. In addition, institutional pluralism exerts significant and negative effects on privatisation proceeds. Partisan differences only emerge if economic problems are moderate, while intense economic, particularly fiscal problems foreclose differing partisan strategies.     

Deficits,Democracy, and Demographics: Europe’s Three Crises

This article argues that the EU and, above all, the eurozone are facing not one crisis – an economic and fiscal one – but three: an economic crisis, a crisis of institutions, and a crisis of demography. These crises are not simultaneous; they are overlapping and self-reinforcing, and there is a high degree of feedback across all three crises. Economically, the euro inflated economic growth and government revenue in the peripheral economies, giving those member states a false sense of their economic prospects. Institutionally, mechanisms were too weak at the EU level to prevent a dangerous escalation of asset (above all house) prices and too fragmented to confront the crisis through an immediate and decisive plan that would provide calm to the markets. Demographically, Europe’s economic and fiscal problems are and will increasingly be exacerbated by the continent’s demographic situation and its projected development, especially in southern Europe.     

Corporatism in 24 industrial democracies: Meaning and measurement

Abstract The ongoing use of the concept of 'corporatism' in industrial democracies has been stretched to include overlapping but still distinctive realities, which in turn often produce different 'lists'of corporatist economies. Consequently, this analysis sets out to disentangle the concept of corporatism and to suggest a replacement. It includes a comparative classification of 24 long–term industrial democracies in terms of the corporatism scores given by 23 different scholarly analyses. The divisions in scoring certain important but problematic cases (such as Japan) can be explained by noting differing emphases in the term. I then propose an alternative, more focused summary measure of economic integration which is clearly linear and which has no 'problem cases'. Precise scores on economic integration are given for four time periods from the late 1960s through the mid–1990s. It will be seen that the industrial democracies have always been dichotomised between integrated and non–integrated (or 'pluralist') economies.     

Corporatism in 24 industrial democracies: Meaning and measurement

The ongoing use of the concept of 'corporatism' in industrial democracies has been stretched to include overlapping but still distinctive realities, which in turn often produce different 'lists'of corporatist economies. Consequently, this analysis sets out to disentangle the concept of corporatism and to suggest a replacement. It includes a comparative classification of 24 long–term industrial democracies in terms of the corporatism scores given by 23 different scholarly analyses. The divisions in scoring certain important but problematic cases (such as Japan) can be explained by noting differing emphases in the term. I then propose an alternative, more focused summary measure of economic integration which is clearly linear and which has no 'problem cases'. Precise scores on economic integration are given for four time periods from the late 1960s through the mid–1990s. It will be seen that the industrial democracies have always been dichotomised between integrated and non–integrated (or 'pluralist') economies.     

Preventing Local Government Fiscal Crises: The North Carolina Approach

Some local governments face fiscal challenges due to mismanagement and declining economies. In particular, manufacturing states like Michigan and Ohio have been hard hit by the effects of international competition. To prevent fiscal distress from becoming a crisis, states exercise oversight over local government fiscal management. The three bond rating agencies consider the North Carolina oversight system a model. This paper discusses the North Carolina oversight system, including audit review, technical assistance, debt issuance, and power to take over the financial operations of distressed local units.     

Whatever Happened to Greece?

The sovereign debt crisis in Greece and other periphery countries is a yardstick for the viability of the European project: if Greece defaults and exits the Euro‐zone, then the entire European architecture will be questioned. This article examines the origins of the Greek debt crisis and argues that the key sources of the debt are the economic and political factions that have dominated Greek politics since the fall of the Colonels in summer 1974 amidst the Cyprus calamity. These factions (political parties, comprador economic interests etc.), whose policy actions and preferences are amalgamated with the interests of Euro‐Atlantic elites, are now being severely undermined, both politically and economically, as the prosperity of the Greek middle classes is eroded following two years of harsh austerity measures imposed on the Greek ruling factions by those Euro‐Atlantic elites. Furthermore, this article outlines ways out of the Greek debt crisis, putting into test some reasonable policy proposals that are being widely discussed in Greece and abroad.     

BUDGETING IN A TIME OF AUSTERITY: THE CASE OF THE ESTONIAN CENTRAL GOVERNMENT

Resulting from the global economic crisis, high budget deficits and debt burden characterise many economies looking for an exit strategy from current fiscal unbalances. The government of Estonia, having pursued a conservative fiscal policy for over a decade, reacted to the economic recession with radical budget adjustments, the latter constituting approximately 9% of gross domestic product in 2009. Consequently, Estonia took its chance and qualified for the euro in 2011. This study examines the behaviour of the Estonian central government and the basis of its budget decisions when planning drastic cost reductions through the theoretical lens of cutback management. The foremost results reveal that the crisis pushed the government to establish a different institutional framework that facilitated fast and effective decision‐making during the budget process. The savings proposals came from the Ministry of Finance; however, running a cash‐basis line‐item budgeting system in practice, the centre possessed only limited performance data for developing the proposals. Consequently, the long‐term impacts of the budget adjustments had not been assessed and are as yet unknown. A further conclusion is that the current budgeting framework should be revised and replaced step by step with a more advanced approach. Copyright © 2012 John Wiley & Sons, Ltd.     

European Monarchies: Guardians of Democracy?

How is it possible to account for the continuing presence of monarchy in advanced social democracies? Much traditional political science assumes teleologically that monarchies inevitably transform into republics as a higher form of governance. This comparative study of the eight main European monarchies maintains otherwise: monarchy is perfectly compatible with democracy, and can help strengthen citizens’ loyalty to the system of government. Provided it delivers a politically impartial head of state, monarchy can endure indefinitely with government and popular support. In practice, the countries studied are de facto republics, but with hereditary heads of state who occupy social roles beyond the reach of quotidian politics. Monarchy’s principal danger is not republicanism, but the pressures of conflicting expectations about what is required of royal families, and the relentless intrusions of modern media in an age when royalty and celebrity are in danger of being conflated. Responses to Covid-19 show how monarchs can speak to and for their nations in ways no partisan politician can.     

Policy Information and Democratic Governance: Federal Social Policy Analysis, 1965–1997

This article considers the development of social policy analysis in the American central government in order both to present the highlights of that three-plus-decade history and to spell out the implications for the United States and other advanced industrial democracies. The argument is that (1) sound policy data and analyses have never been so needed in the face of increasing political polarization and overwhelming amounts of difficult-to-validate policy information produced in the electronic revolution; and (2) the American experience may be particularly useful to other advanced nations because what works in the United States should work better in these countries, in that they have less complex parliamentary structures without America's independent legislature to challenge the chief executive.