Fiscal Consolidations and Electoral Outcomes in Emerging Economies: Does the Policy Mix Matter?: Macro and Micro Level Evidence from Latin America
Martin Ardanaz (),
Mark Hallerberg and
Carlos Scartascini
No 9747, IDB Publications (Working Papers) from Inter-American Development Bank
Abstract:
Do voters punish governments that introduce fiscal “austerity” measures? If so, does voter response vary according to the design (composition) of fiscal adjustments? What determines the timing of fiscal consolidations? The empirical literature on the political economy of fiscal adjustments, mostly OECD-based, argues that consolidations do not have significant electoral consequences. This paper re-examines these questions and finds that voters punish fiscal consolidations at the polls in Latin America and the Caribbean (LAC). To explain this result, we focus on the composition and timing of fiscal adjustments episodes. Such episodes rely fundamentally on increasing tax rates and bases of indirect taxes (such as the VAT) that hit broad segments of the population. Moreover, these policies are often implemented when politicians have no choice but to consolidate, that is, under severe economic circumstances. These macro results are corroborated with micro evidence from an original survey experiment that measures voter’s fiscal policy preferences over the business cycle in seven countries across Latin America. The experimental evidence shows that respondents prefer expenditure cuts to tax increases during recessions. This begs the question—if tax increases are more electorally costly, why do governments rely on them? It is argued the policy choice set available to pursue fiscal consolidation is relatively narrow in LAC, suggesting that investments in fiscal capacity are needed to expand the policy toolset of governments in the face of negative shocks.
Keywords: Fiscal deficit; Taxes; Public expenditures; Business cycle; Elections (search for similar items in EconPapers)
JEL-codes: E62 H20 H50 H62 (search for similar items in EconPapers)
Date: 2019-08
References: Add references at CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
https://publications.iadb.org/publications/english ... Latin_America_en.pdf (application/pdf)
Related works:
Journal Article: Fiscal consolidations and electoral outcomes in emerging economies: Does the policy mix matter? Macro and micro level evidence from Latin America (2020) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:9747
DOI: 10.18235/0001815
Access Statistics for this paper
More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().