How Fiscal Austerity Impacts Politics and Economies: An Eye-Opening Study originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Ricardo Duque Gabriel, Economist at Federal Reserve Board Of Governors, on Quora:
In the aftermath of the Great Recession, the world witnessed a remarkable surge in support for anti-establishment and populist parties across advanced economies. This phenomenon stirred up partisan conflicts and led to fragmented parliaments. Such political polarization isn’t just a matter of ideology; it’s associated with increased policy uncertainty and, intriguingly, lower economic growth.
This surge in support for extreme parties coincided with an era of substantial fiscal policy interventions. Several European nations embarked on ambitious fiscal consolidation endeavors to tackle soaring public debt levels. However, these austerity measures faced considerable backlash, giving rise to anti-austerity movements.
A recent study delves into the intricate relationship between fiscal consolidations and rising political polarization, shedding light on the political costs of austerity. To explore this, we’ve curated a comprehensive regional database spanning more than two decades and covering over 200 elections in Europe. The findings reveal a significant link between fiscal consolidations and the increased vote shares of extreme parties, a decline in voter turnout, and a surge in political fragmentation.
Moreover, austerity-driven recessions have a unique and amplified impact, fostering higher levels of distrust in the political environment. The economic consequences of austerity are far-reaching, leading to significant reductions in regional output, employment, investments, consumption, and wages. Our analysis indicates a disconcerting pattern: austerity-induced recessions lead to a more substantial increase in the vote share for extreme parties, particularly during these trying economic times.
To sum it up, austerity-driven recessions, far from being a mere economic phenomenon, hold the power to shape political landscapes by fostering distrust and bolstering support for extreme parties. The interplay between fiscal policies, politics, and economics is indeed complex, as our study highlights.
So, the next time you hear about austerity measures, remember that their implications reach far beyond just economic matters. They have the potential to reshape the political landscape and influence our economies in unforeseen ways.
For more detailed insights, please visit our full study in the link below.
The Political Costs of Austerity | Ricardo Duque Gabriel
This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.