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

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 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Public Policy Taylor & Francis

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

18 pages

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References (61)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1466-4429
eISSN
1350-1763
DOI
10.1080/13501763.2011.614158
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

Journal of European Public PolicyTaylor & Francis

Published: Aug 1, 2012

Keywords: Budgeting; comparative political economy; electoral system; fiscal austerity; public investments; welfare state policies

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