December 14, 2011

CUT AS MUCH AS YOU WANT, SO LONG AS YOU REDUCE DEFICITS:

Will Budget Cuts Doom Europe's Leaders? A New Paper Suggests No (Jordan Weissmann, Dec 13 2011, Atlantic)

Austerity, it appears, is ready to conquer Europe. Last week, the continent's leaders joined hands and agreed to pursue tighter integration on spending policy, including tough rules that would punish profligate governments. Meanwhile, new leaders in Greece and Italy are pushing budget reforms meant to win back the good graces of global investors.

How will all this new frugality play with voters? We have yet to see. But if Europe's heads of state are worried about their next election, they might take solace in a new study by Harvard economist Alberto Alesina.

The working paper, released this week, argues that governments that cut deficits by slashing spending or raising taxes don't necessarily suffer at the polls. Focusing on the years from 1975 through 2008, it looks at the electoral fortunes of governments in the 19 early members of the OECD. Those include rich European nations such as Britain, Germany, and Italy, as well as the United States and Japan. Despite the conventional wisdom that spending cuts and tax hikes are political poison, the study concludes that there is "no evidence that governments which reduce budget deficits even decisively are systemically voted out of office."

Voters like successful governments.

Posted by at December 14, 2011 6:14 AM
  

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