The politics of fiscal consolidation revisited

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.