Fiscal austerity and the trade-off between public investment and social spending

This article makes two claims: first, it argues that the impact of fiscal austerity varies across different types of public spending. In particular, we show that discretionary spending (public investment) is hit harder by fiscal austerity than entitlement spending (public spending on pensions and un...

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Bibliographic Details
Published in:Journal of European public policy 2012-08, Vol.19 (6), p.921-938
Main Authors: Breunig, Christian, Busemeyer, Marius R.
Format: Article
Language:English
Subjects:
Austerity policy
Budgeting
Comparative economics
comparative political economy
Elections
Electoral College
electoral system
Electoral Systems
Expenditures
fiscal austerity
Fiscal policy
Government Spending
Majority groups
Methodology
OECD
Pensions
Proportional Representation
Public investment
Public Investments
Unemployment
Welfare state
welfare state policies
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Summary:This article makes two claims: first, it argues that the impact of fiscal austerity varies across different types of public spending. In particular, we show that discretionary spending (public investment) is hit harder by fiscal austerity than entitlement spending (public spending on pensions and unemployment) because of different institutional and political constraints. Second, we find that electoral institutions affect how governments solve this trade-off. Discretionary spending is cut back more severely in countries with an electoral system based on proportional representation than in a majoritarian system. Our empirical analysis relies on a methodological approach (composite data analysis) that takes into account interdependencies between budgetary categories. Using data for 21 Organisation for Economic Co-operation and Development countries from 1979 to 2003, we find strong evidence for the varying impact of fiscal stress on the budget shares of discretionary and entitlement spending as well as strong interactive effect between fiscal austerity and electoral institutions.
ISSN:1350-1763
1466-4429
DOI:10.1080/13501763.2011.614158