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Did Austerity Cause Brexit?

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  • Fetzer, Thiemo

    (Department of Economics, University of Warwick)

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

  • Fetzer, Thiemo, 2018. "Did Austerity Cause Brexit?," CAGE Online Working Paper Series 381, Competitive Advantage in the Global Economy (CAGE).
  • Handle: RePEc:cge:wacage:381
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/381-2018_fetzer.pdf
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    Cited by:

    1. repec:eee:poleco:v:56:y:2019:i:c:p:132-150 is not listed on IDEAS
    2. Thiemo René Fetzer & Carlo Schwarz, 2019. "Tariffs and politics: evidence from Trump's trade wars," CESifo Working Paper Series 7553, CESifo Group Munich.
    3. Crafts, Nicholas, 2019. "The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate," CEPR Discussion Papers 13428, C.E.P.R. Discussion Papers.
    4. Eleonora Alabrese & Thiemo René Fetzer, 2018. "Who is NOT Voting for Brexit Anymore?," CESifo Working Paper Series 7389, CESifo Group Munich.
    5. Emilio Ocampo, 2019. "The Economic Analysis of Populism. A Selective Review of the Literature," CEMA Working Papers: Serie Documentos de Trabajo. 694, Universidad del CEMA.
    6. Kevin Hjortshøj O'Rourke, 2018. "Economic History and Contemporary Challenges to Globalization," NBER Working Papers 25364, National Bureau of Economic Research, Inc.
    7. 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.
    8. Carlo Altomonte & Gloria Gennaro & Francesco Passarelli, 2019. "Collective Emotions and Protest Vote," CESifo Working Paper Series 7463, CESifo Group Munich.
    9. Fetzer, Thiemo & Schwarz, Carlo, 2019. "Tariffs and Politics: Evidence from Trump’s Trade Wars," CAGE Online Working Paper Series 407, Competitive Advantage in the Global Economy (CAGE).

    More about this item

    Keywords

    Political Economy ; Austerity ; Globalization ; Voting ; EU JEL Classification: H2 ; H3 ; H5 ; P16 ; D72;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • 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

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