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From austerity to expansion? Consolidation, budget surpluses, and the decline of fiscal capacity

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  • Haffert, Lukas
  • Mehrtens, Philip

Abstract

In the wake of the financial crisis, most developed countries have entered a period of prolonged budgetary austerity. While the success of austerity programs is still unclear, it is also an open question what success would mean for activist government in the long run. This paper rejects the progressive belief that successful fiscal consolidation will lead to a strengthening of fiscal capacity, arguing that consolidations transform the political context in which fiscal policy is made. By analyzing the evolution of public expenditure in six countries with sustained budget surpluses, it shows that while surpluses were mostly achieved through expenditure cuts, they were predominantly used for cutting taxes. While fiscal crises abated, their collateral damage to public expenditure remained. This result is further elaborated by a case study of the Swedish budget surplus. The paper concludes that consolidations can create a specific type of fiscal regime and thus have long-term consequences for the fiscal capacity of the state.

Suggested Citation

  • Haffert, Lukas & Mehrtens, Philip, 2013. "From austerity to expansion? Consolidation, budget surpluses, and the decline of fiscal capacity," MPIfG Discussion Paper 13/16, Max Planck Institute for the Study of Societies.
    • Handle: RePEc:zbw:mpifgd:1316
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    Cited by:

    1. Svallfors, Stefan, 2015. "Politics as organized combat: New players and new rules of the game in Sweden," MPIfG Discussion Paper 15/2, Max Planck Institute for the Study of Societies.
    2. Vladimir Ilyin & Anna Povarova, 2019. "Consolidated Taxation and Its Consequences for Regional Budgets," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(1), pages 70-83.
    3. Stefan Svallfors, 2016. "Politics as organised combat – New players and new rules of the game in Sweden," New Political Economy, Taylor & Francis Journals, vol. 21(6), pages 505-519, November.
    4. Streeck, Wolfgang, 2015. "The rise of the European consolidation state," MPIfG Discussion Paper 15/1, Max Planck Institute for the Study of Societies.
    5. I. Bukina S. & И. Букина С., 2018. "Политика Финансовой Консолидации И Развитие Экономики В Условиях Внешних Шоков // The Policy Of Financial Consolidation And Economic Development In The Face Of External Shocks," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 22(1), pages 6-21.

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