Globalization and Austerity: Flipping Partisan Effects on Fiscal Policy During (Recent) International Crises

Abstract

This article investigates the effect of government partisanship on fiscal policy outputs during the three international economic crises of 1981–1984, 1990–1994 and 2008–2013. Encompassing 19–23 advanced democracies, the statistical analysis suggests that partisan effects have increased over time and are characterized, in the two last crises, by a “new asymmetry” whereby left governments pursued more contractionary fiscal policies than non-left governments over the course of the business cycle. Furthermore, it attributes left governments’ endorsement of austere fiscal policies to the constraining effects of financial markets in the context of high/surging debt. This is supported by qualitative analysis of select government responses to the Global Financial Crisis, shedding new light on the new austerity that started in the early 2010s. The ideological mix with political partisanship during hard times surely is confusing to ordinary citizens. The article cautiously points to a neglected yet important international economic origin of our political discontents.

Keywords

crisis responses, macroeconomic policy, left governments, financial market constraints, bond markets