IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_7159.html
   My bibliography  Save this paper

Did Austerity Cause Brexit?

Author

Listed:
  • Thiemo Fetzer

Abstract

Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. Further, auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.

Suggested Citation

  • Thiemo Fetzer, 2018. "Did Austerity Cause Brexit?," CESifo Working Paper Series 7159, CESifo.
  • Handle: RePEc:ces:ceswps:_7159
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7159.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Piketty, 2018. "Brahmin Left vs Merchant Right: Rising Inequality & the Changing Structure of Political Conflict," Working Papers hal-02878211, HAL.
    2. Enrico Spolaore, 2013. "What Is European Integration Really About? A Political Guide for Economists," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 125-144, Summer.
    3. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    4. Dani Rodrik, 2000. "How Far Will International Economic Integration Go?," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 177-186, Winter.
    5. Sascha O. Becker & Thiemo Fetzer, 2018. "Has Eastern European Migration Impacted UK-born Workers?," CAGE Online Working Paper Series 376, Competitive Advantage in the Global Economy (CAGE).
    6. David Autor & David Dorn & Gordon Hanson & Kaveh Majlesi, 2020. "Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure," American Economic Review, American Economic Association, vol. 110(10), pages 3139-3183, October.
    7. Inglehart, Ronald F. & Norris, Pippa, 2016. "Trump, Brexit, and the Rise of Populism: Economic Have-Nots and Cultural Backlash," Working Paper Series 16-026, Harvard University, John F. Kennedy School of Government.
    8. Mayda, Anna Maria & Peri, Giovanni & Steingress, Walter, 2015. "Immigration to the U.S.: A Problem for the Republicans or the Democrats?," IZA Discussion Papers 9543, Institute of Labor Economics (IZA).
    9. Christian Dustmann & Kristine Vasiljeva & Anna Piil Damm, 2019. "Refugee Migration and Electoral Outcomes," Review of Economic Studies, Oxford University Press, vol. 86(5), pages 2035-2091.
    10. Gianmarco I. P. Ottaviano & Giovanni Peri, 2021. "Rethinking The Effect Of Immigration On Wages," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 9, pages 245-290, World Scientific Publishing Co. Pte. Ltd..
    11. Enrico Moretti, 2010. "Local Multipliers," American Economic Review, American Economic Association, vol. 100(2), pages 373-377, May.
    12. Andreas Steinmayr, 2016. "Exposure to Refugees and Voting for the Far-Right. (Unexpected) Results from Austria," WIFO Working Papers 514, WIFO.
    13. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    14. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1055-1089.
    15. Sascha O Becker & Thiemo Fetzer & Dennis Novy, 2017. "Who voted for Brexit? A comprehensive district-level analysis," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 601-650.
    16. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    17. Georg Graetz & Guy Michaels, 2018. "Robots at Work," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 753-768, December.
    18. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    19. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
    20. Alabrese, Eleonora & Becker, Sascha O. & Fetzer, Thiemo & Novy, Dennis, 2019. "Who voted for Brexit? Individual and regional data combined," European Journal of Political Economy, Elsevier, vol. 56(C), pages 132-150.
    21. David P. Myatt, 2017. "A Theory of Protest Voting," Economic Journal, Royal Economic Society, vol. 127(603), pages 1527-1567.
    22. Becker, Sascha O. & Fetzer, Thiemo, 2018. "Has Eastern European Migration Impacted UK-born Workers?," The Warwick Economics Research Paper Series (TWERPS) 1165, University of Warwick, Department of Economics.
    23. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    24. Sascha Becker & Thiemo Fetzer & Dennis Novy & Sascha O. Becker, 2017. "Who Voted for Brexit?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(04), pages 03-05, December.
    25. Aksoy, Cevat Giray & Guriev, Sergei & Treisman, Daniel, 2018. "Globalization, Government Popularity, and the Great Skill Divide," CEPR Discussion Papers 12897, C.E.P.R. Discussion Papers.
    26. Richard Rogerson, 2008. "Structural Transformation and the Deterioration of European Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 235-259, April.
    27. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    28. Becker, Sascha O. & Fetzer, Thiemo & Novy, Dennis, 2022. "Who Voted for Brexit? A Comprehensive District-Level Analysis," CEPR Discussion Papers 11954, C.E.P.R. Discussion Papers.
    29. Bursztyn, Leonardo & Cantoni, Davide & Funk, Patricia & Yuchtman, Noam, 2017. "Polls, the Press, and Political Participation: The Effects of Anticipated Election Closeness on Voter Turnout," CEPR Discussion Papers 12088, C.E.P.R. Discussion Papers.
    30. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
    31. repec:hhs:iuiwop:430 is not listed on IDEAS
    32. George J. Borjas, 2021. "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 9, pages 235-274, World Scientific Publishing Co. Pte. Ltd..
    33. Blumenau, Jack & Eggers, Andrew C. & Hangartner, Dominik & Hix, Simon, 2017. "Open/Closed List and Party Choice: Experimental Evidence from the UK," British Journal of Political Science, Cambridge University Press, vol. 47(4), pages 809-827, October.
    34. Leonardo Bursztyn & Davide Cantoni & Patricia Funk & Felix Schönenberger & Noam Yuchtman, 2017. "Identifying the Effect of Election Closeness on Voter Turnout: Evidence from Swiss Referenda," NBER Working Papers 23490, National Bureau of Economic Research, Inc.
    35. Kenneth Scheve & Matthew J. Slaughter, 2004. "Economic Insecurity and the Globalization of Production," American Journal of Political Science, John Wiley & Sons, vol. 48(4), pages 662-674, October.
    36. Dani Rodrik, 2016. "Premature deindustrialization," Journal of Economic Growth, Springer, vol. 21(1), pages 1-33, March.
    37. David Innes & Gemma Tetlow, 2015. "Delivering Fiscal Squeeze by Cutting Local Government Spending," Fiscal Studies, Institute for Fiscal Studies, vol. 36, pages 303-325, September.
    38. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
    39. Anderson, Christopher J. & Reichert, M. Shawn, 1995. "Economic Benefits and Support for Membership in the E.U.: A Cross-National Analysis," Journal of Public Policy, Cambridge University Press, vol. 15(3), pages 231-249, September.
    40. Galofré-Vilà, Gregori & Meissner, Christopher M. & McKee, Martin & Stuckler, David, 2021. "Austerity and the Rise of the Nazi Party," The Journal of Economic History, Cambridge University Press, vol. 81(1), pages 81-113, March.
    41. Alberto Alesina & Dorian Carloni & Giampaolo Lecce, 2012. "The Electoral Consequences of Large Fiscal Adjustments," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 531-570, National Bureau of Economic Research, Inc.
    42. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
    43. Tommaso Colussi & Ingo E. Isphording & Nico Pestel, 2021. "Minority Salience and Political Extremism," American Economic Journal: Applied Economics, American Economic Association, vol. 13(3), pages 237-271, July.
    44. Ponticelli, Jacopo & Voth, Hans-Joachim, 2020. "Austerity and anarchy: Budget cuts and social unrest in Europe, 1919–2008," Journal of Comparative Economics, Elsevier, vol. 48(1), pages 1-19.
    45. David P. Myatt, 2017. "A Theory of Protest Voting," Economic Journal, Royal Economic Society, vol. 127(603), pages 1527-1567, August.
    46. Christian Dustmann & Tommaso Frattini & Ian P. Preston, 2013. "The Effect of Immigration along the Distribution of Wages," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 145-173.
    47. Spolaore, Enrico, 2013. "What Is European Integration Really About? A Political Guide for Economists," CAGE Online Working Paper Series 141, Competitive Advantage in the Global Economy (CAGE).
    48. Barone, Guglielmo & D'Ignazio, Alessio & de Blasio, Guido & Naticchioni, Paolo, 2016. "Mr. Rossi, Mr. Hu and politics. The role of immigration in shaping natives' voting behavior," Journal of Public Economics, Elsevier, vol. 136(C), pages 1-13.
    49. Christian Dippel & Robert Gold & Stephan Heblich, 2015. "Globalization and Its (Dis-)Content: Trade Shocks and Voting Behavior," NBER Working Papers 21812, National Bureau of Economic Research, Inc.
    50. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    51. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    52. repec:ces:ifodic:v:15:y:2018:i:4:p:50000000000852 is not listed on IDEAS
    53. SaschaBecker & ThiemoFetzer & DennisNovy & Sascha O.Becker, 2018. "Who Voted for Brexit?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(04), pages 03-05, January.
    54. Ana L. Revenga, 1992. "Exporting Jobs?The Impact of Import Competition on Employment and Wages in U. S. Manufacturing," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 255-284.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fetzer, Thiemo, 2018. "Did Austerity Cause Brexit?," CAGE Online Working Paper Series 381, Competitive Advantage in the Global Economy (CAGE).
    2. Becker, Sascha O. & Fetzer, Thiemo, 2018. "Why an EU Referendum? Why in 2016?," CAGE Online Working Paper Series 366, Competitive Advantage in the Global Economy (CAGE).
    3. Becker, Sascha O & Thiemo Fetzer, 2018. "Why an EU Referendum? Why in 2016?," The Warwick Economics Research Paper Series (TWERPS) 1160, University of Warwick, Department of Economics.
    4. Giordani, Paolo E. & Mariani, Fabio, 2022. "Unintended consequences: Can the rise of the educated class explain the revival of protectionism?," Journal of Economic Theory, Elsevier, vol. 200(C).
    5. Yann Algan & Sergei Guriev & Elias Papaioannou & Evgenia Passari, 2017. "The European Trust Crisis and the Rise of Populism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 309-400.
    6. O’Rourke, Kevin Hjortshøj, 2019. "Economic History and Contemporary Challenges to Globalization," The Journal of Economic History, Cambridge University Press, vol. 79(2), pages 356-382, June.
    7. Kevin Hjortshøj O'Rourke, 2018. "Economic history and contemporary challenges to globalization," Oxford Economic and Social History Working Papers _167, University of Oxford, Department of Economics.
    8. Lechler, Marie, 2019. "Employment shocks and anti-EU sentiment," European Journal of Political Economy, Elsevier, vol. 59(C), pages 266-295.
    9. Alabrese, Eleonora & Becker, Sascha O. & Fetzer, Thiemo & Novy, Dennis, 2019. "Who voted for Brexit? Individual and regional data combined," European Journal of Political Economy, Elsevier, vol. 56(C), pages 132-150.
    10. Edo, Anthony & Giesing, Yvonne & Öztunc, Jonathan & Poutvaara, Panu, 2019. "Immigration and electoral support for the far-left and the far-right," European Economic Review, Elsevier, vol. 115(C), pages 99-143.
    11. Eric D Gould, 2019. "Explaining the Unexplained: Residual Wage Inequality, Manufacturing Decline and Low-skilled Immigration," The Economic Journal, Royal Economic Society, vol. 129(619), pages 1281-1326.
    12. Philipp Harms & Jakob Schwab, 2019. "Depression of the deprived or eroding enthusiasm of the elites: What has shifted the support for globalization?," Working Papers 1912, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    13. Eugenio Levi & Fabrizio Patriarca, 2020. "An exploratory study of populism: the municipality-level predictors of electoral outcomes in Italy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 833-875, October.
    14. Yann Algan & Sergei Guriev & Elias Papaioannou & Evgenia Passari, 2017. "The European Trust Crisis and the Rise of Populism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 309-400.
    15. Harms, Philipp & Schwab, Jakob, 2020. "Depression of the deprived or eroding enthusiasm of the elites: What has shifted the support for international trade?," European Journal of Political Economy, Elsevier, vol. 64(C).
    16. T. Gries & R. Grundmann & I. Palnau & M. Redlin, 2017. "Innovations, growth and participation in advanced economies - a review of major concepts and findings," International Economics and Economic Policy, Springer, vol. 14(2), pages 293-351, April.
    17. Sebastian Doerr & Stefan Gissler & José-Luis Peydró & Hans-Joachim Voth, 2018. "From finance to fascism," Economics Working Papers 1651, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2020.
    18. Annie Tubadji & Thomas Colwill & Don Webber, 2021. "Voting with your feet or voting for Brexit: The tale of those stuck behind," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(2), pages 247-277, April.
    19. Sebastian Doerr & Stefan Gissler & José‐Luis Peydró & Hans‐Joachim Voth, 2022. "Financial Crises and Political Radicalization: How Failing Banks Paved Hitler's Path to Power," Journal of Finance, American Finance Association, vol. 77(6), pages 3339-3372, December.
    20. Eugenio Levi & Isabelle Sin & Steven Stillman, 2021. "Understanding the Origins of Populist Political Parties and the Role of External Shocks," Working Papers 21_09, Motu Economic and Public Policy Research.

    More about this item

    Keywords

    political economy; austerity; globalization; voting; EU;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_7159. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.