Fiscal Adjustment, Mainstream Parties and Polarization

In recent decades, fiscal adjustment has become a common policy of mainstream parties, both of the centre-right and the centre-left. These adjustment measures, often summarized under the term ‘austerity’, refer to a set of fiscal decisions that aim at reducing the fiscal deficit by a pre-specified amount. In practice, these decisions entail a mix of spending cuts, such as a reduction in social spending, educational expenditures or public investment, and tax increases, such as higher value-added tax (VAT) or income taxes.

These austerity measures are a distributional shock that hurts a significant fraction of voters, especially those in an economically precarious situation. Fiscal adjustments often come with significant reductions in welfare provisions, especially social security transfers or unemployment benefits (Armingeon, Guthmann and Weisstanner Reference Armingeon, Guthmann and Weisstanner2016). Yet, these are precisely the instruments that governments can use to alleviate the negative impact on economically vulnerable voters of the great structural transformations of recent decades, such as globalization or automation (Baccini and Sattler Reference Baccini and Sattler2020; Vlandas and Halikiopoulou Reference Vlandas and Halikiopoulou2022). For instance, recent research shows that social policies can effectively reduce the risk that economically vulnerable groups face in open economies (Hacker and Rehm Reference Hacker and Rehm2022). Moreover, tax increases, especially regressive taxes like VAT, disproportionately hurt less privileged groups. As a result, fiscal adjustments have distributional implications that affect an important part of the electorate.

Nevertheless, nowadays, centre-left governments do not distinguish themselves substantially from centre-right governments in their position towards fiscal adjustments. Centre-left parties are equally likely (or, by some accounts, more likely) to pass adjustment packages compared to centre-right governments (Armingeon, Guthmann and Weisstanner Reference Armingeon, Guthmann and Weisstanner2016; Hübscher and Sattler Reference Hübscher and Sattler2017; Raess Reference Raess2021).Footnote ¹ More broadly, nowadays, centre-left parties tend to back economic models of which fiscal restraint is a fundamental pillar (Hopkin Reference Hopkin2020; Mudge Reference Mudge2018). For example, social-democratic parties in Britain, Germany, the Netherlands and Sweden have embraced orthodox economic policies, even though their ideological foundations differ (Bremer and McDaniel Reference Bremer and McDaniel2019).

This combination of limited competition among mainstream political parties over fiscal adjustments and the distributional effects of these policies increases political polarization, which is a key characteristics of party systems (Dalton Reference Dalton2008; Sartori Reference Sartori1976). We define polarization as the degree to which political actors in a political system take distinct ideological positions and are thus ideologically dispersed along the left–right political dimension. Following Dalton (Reference Dalton2008), we take into account both the positions of political parties and the relative popularity of these parties among voters (see also Dassonneville and Cakir Reference Dassonneville and Cakir2021; Ezrow Reference Ezrow2007).Footnote ² Therefore, political polarization can change through two mechanisms: first, polarization increases if existing parties move further towards the edges of the political spectrum (holding vote shares constant); and, secondly, polarization increases if electoral support for (existing or new) political parties at the fringes of the political spectrum increases (holding party positions constant). This gives more weight to parties at the poles of the political system and increases the variance of ideological positions. Related to the second mechanism, polarization can increase indirectly when voters who previously supported moderate parties decide to abstain from voting. This, again, changes the relative weight of parties at the poles compared to those in the political centre.

Our article focuses on the second mechanism.Footnote ³ According to our argument, shifts in electoral support after fiscal adjustments increase polarization, which is our main dependent variable. This happens because voters defect from mainstream parties, either by abstaining or by opting for more radical parties. We, therefore, examine non-mainstream party vote and electoral abstentions as additional dependent variables.

Why Voters Leave: Austerity and Voter Defection from Mainstream Parties

When voters perceive mainstream parties as similar on key policy issues, in our case, fiscal policy, some voters defect from these parties (Spoon and Klüver Reference Spoon and Klüver2019). To understand this process, let us first look at a scenario where the mainstream left party is in government and implements fiscal austerity measures when faced with fiscal pressure. In doing so, mainstream left parties reveal that their fiscal policy position diverges from the policy preferences of an important part of their traditional electoral base. It is unlikely that the mainstream right will take a position that is more critical of austerity than the mainstream left party in government, as parties rarely leapfrog each other ideologically. Hence, voters who aim to express their disapproval of austerity should not then switch to the mainstream right party; rather, they should defect from mainstream parties altogether.

Next, take a scenario where a mainstream right party with a pro-austerity position is in government and implements austerity. The mainstream left party could benefit from taking up a contrasting stance, but their track record is likely to reduce the credibility of such stances (Horn Reference Horn2021). Nowadays, centre-left parties are as likely to implement austerity as centre-right parties, and centre-left parties in most Western countries have regularly implemented major fiscal adjustment packages when in power, leading to a dilution of their party ‘brand’ (Bodea, Bagashka and Han Reference Bodea, Bagashka and Han2021; Lupu Reference Lupu2014). As a result of the parties' past policy-making trajectory, many voters who oppose austerity will not see the mainstream left as a valid, credible alternative (Horn Reference Horn2021; Karreth, Polk and Allen Reference Karreth, Polk and Allen2013), and the result is again defection from mainstream parties or electoral abstention.Footnote ⁴

The preceding logic rests on several assumptions. First, we assume that voters support parties based on the perceived proximity of the party's fiscal policy stance to their own position. The literature generally uses two dimensions along which parties and voters position themselves: an economic and a cultural dimension (see, for example, Norris and Inglehart Reference Norris and Inglehart2018). For the sake of simplicity, we treat fiscal policy as the main policy lever for the economic dimension. This does not require that all voters privilege economic issues at all times. For some voters, fiscal policy may not be salient enough to trump other policy issues (Giger Reference Giger2012). Such voters will not react to austerity measures, but instead continue to vote for the party that they supported in the past (keeping everything else constant). Our assumption is that fiscal policy is a salient issue for a significant number of voters, for instance, those who are hit by the distributional effects of austerity or who oppose fiscal adjustments for sociotropic reasons.

Secondly, we assume that government parties cannot fully spare their own base by imposing the burden of adjustment on voters of other parties. Meaningful fiscal adjustments, which often amount to deficit reductions of 2 per cent or more of gross domestic product (GDP), generally involve adjustments in most categories of the public budget.Footnote ⁵ Yet, adjustments in almost all areas of the public budget lead to a reduction in voter support, especially when social policies are concerned (Bansak, Bechtel and Margalit Reference Bansak, Bechtel and Margalit2021).Footnote ⁶ This is consistent with earlier findings that social policies enjoy broad support in the population (Blekesaune and Quadagno Reference Blekesaune and Quadagno2003) and limits the possibilities to manipulate public support by shifting the burden of adjustment from one fiscal policy field to another. Moreover, not only left, but also right, voters negatively react to fiscal adjustments (Hübscher, Sattler and Wagner Reference Hübscher, Sattler and Wagner2021).Footnote ⁷

Thirdly, we assume that neither mainstream right nor mainstream left parties have sufficient anti-austerity credibility to attract dissatisfied voters. This does not preclude that these parties still emphasize social inequality differently, for example, in their party manifestos. However, centre-left and centre-right parties broadly agree that low fiscal deficits are a political priority, and their fiscal policy trajectories are similar when they are in government.Footnote ⁸ Such past policy decisions of parties in government strongly impact voter perceptions of party positions, more so than electoral platforms (Adams, Ezrow and Somer-Topcu Reference Adams, Ezrow and Somer-Topcu2011; Fernandez-Vazquez Reference Fernandez-Vazquez2019). The fact that most centrist parties now have a history of implementing austerity, as discussed earlier, is therefore crucial.

Finally, and related to the previous point, mainstream parties implement austerity despite the risk that dissatisfied voters abandon them. International political integration, the establishment of the Eurozone and the related fiscal rules induce governments to pursue similar, low-deficit fiscal policies (Hübscher and Sattler Reference Hübscher, Sattler, Blyth, Baccaro and Pontusson2022). In addition, international financial markets impose constraints on fiscal policy, especially on public deficits and debt (Mosley Reference Mosley2000). This pushes governments towards technocratic solutions in search of economic credibility, which again favour restrictive fiscal policy (Alexiadou, Spaniel and Gunaydin Reference Alexiadou, Spaniel and Gunaydin2022). In this context, a new, pro-austerity consensus emerged that was actively promoted by powerful international institutions, such as the European Central Bank (ECB) and the International Monetary Fund (IMF) (Blyth Reference Blyth2013). Hence, we expect that:

Where Voters Go: Voter Defection and Polarization

Voters who turn away from mainstream parties have two options: they can choose to vote for a non-mainstream party or they can abstain. This can happen out of protest without clear expectation of how this impacts fiscal policy. However, there are also clear policy-related reasons why voters would shift towards non-mainstream parties. First, dissatisfied voters would select a non-mainstream party if they see this party as a credible, anti-austerity alternative. Secondly, and relatedly, a voter may also expect that the electoral success of non-mainstream parties will induce a shift in the position of mainstream parties away from austerity. Both reasons require that the voter weights the economic dimension of political competition relatively highly, which is plausible when the distributional effects of austerity on the voter are large.

Other voters may instead decide to abstain from voting altogether. While abstention has many motivations (Smets and van Ham Reference Smets and van Ham2013), disenchantment with democracy and the political establishment are a prominent determinant (Hillen and Steiner Reference Hillen and Steiner2020). Specific policy decisions by government parties may also have a detrimental impact on political participation. For instance, centrist voters may be loath to vote for non-mainstream competitors, even when they disagree with mainstream parties' austerity policy stances, because they strongly disagree with the radical party's position on the cultural dimension. As they are indifferent between equally unpalatable choices, such voters may abstain, rather than choose between unsatisfactory alternatives.

Both defection and abstention lead to an increase in party system polarization. As discussed earlier, defection to non-mainstream, often non-centrist, parties bolsters their overall share of electoral support, increasing the (weighted) dispersion of positions in a party system (Ezrow Reference Ezrow2007).Footnote ⁹ Similarly, differential abstention by previous mainstream party voters also increases the (weighted) dispersion of positions, as the relative share of non-mainstream competitors increases. Ironically, then, the centripetal positioning of mainstream parties in fiscal policy leads to an overall trend towards centrifugal competition in the political system as a whole.

Again, this logic rests on a number of assumptions. First, voters need to believe that a growing vote share of non-mainstream parties reduces the likelihood of fiscal austerity. This, in turn, requires that non-mainstream parties credibly position themselves against austerity. Here, non-mainstream parties have an advantage because, unlike mainstream opposition parties, they usually do not have a history of implementing fiscal adjustments. Among the different types of non-mainstream parties, radical-left parties, for instance, Die Linke in Germany, the Dutch Socialist Party or France Insoumise, seem an obvious choice for voters who disapprove of fiscal cutbacks. Such parties take a clear stance against austerity and have strongly opposed interference by international actors promoting fiscal adjustments, such as the IMF or the European Union (EU). Some radical-left parties even emerged from anti-austerity movements, for instance, Podemos in Spain.

Radical-right parties can also be attractive to voters disappointed with fiscal policies. They strategically position themselves as an alternative to mainstream parties (De Vries and Hobolt Reference De Vries and Hobolt2020). Austerity is one area where radical-right parties regularly do so, and they often position themselves clearly on economic policies, especially when they can oppose specific austerity measures (Röth, Afonso and Spies Reference Röth, Afonso and Spies2018). In such cases, radical-right parties have consistently defended social policies, for example, pensions, against retrenchment proposals (Enggist and Pinggera Reference Enggist and Pinggera2022).Footnote ¹⁰ Voters, therefore, can have direct policy-related motives when they select a radical-right party in response to fiscal austerity.

Some voters may also have broader motives that involve other issues related to austerity. Radical-right parties effectively link austerity to Europeanization, globalization, the political establishment and immigration. Radical-right parties often advocate rolling back Europeanization and globalization to lift the constraints imposed by international integration. Examples are UKIP in Britain (Fetzer Reference Fetzer2019) or the Rassemblement National in France, which actively courts dissatisfied voters by stressing its opposition to the political establishment and austerity policies.Footnote ¹¹ Many parties, such as Lega or the Golden Dawn, also reframe austerity politics as a migration-related, cultural issue by promoting ‘welfare chauvinism’ (Vlandas and Halikiopoulou Reference Vlandas and Halikiopoulou2022). This shifts attention to issues where the radical right takes particularly clear positions, such as immigration and the EU.

Secondly, we assume that non-mainstream parties have a chance either to participate in government or to move the policy positions of mainstream parties. In many countries, non-mainstream parties have participated in government, for example, in Austria, Finland and Italy. In line with our argument, radical parties, including those on the right, refrain from fiscal retrenchment when in government (Röth, Afonso and Spies Reference Röth, Afonso and Spies2018). However, even if radical parties are not in government, their electoral success can be enough to shift the positions of other parties (Abou-Chadi and Krause Reference Abou-Chadi and Krause2020). Therefore, it makes sense for anti-austerity voters to support radical parties even if these parties will not be part of the next government. Hence, we expect that:

Empirical Design and Data

The first part of our empirical analysis examines elections from sixteen advanced economies between 1980 and 2016.Footnote ¹² This macro approach is useful for assessing the relationship between fiscal policy and political changes at the party systems level. The country-level analysis captures the empirical relationship between fiscal policy and the patterns of national election outcomes, as well as the associated systemic changes. Given that we are assessing the variation in fiscal policy across all elections, our counterfactual is the absence of fiscal consolidation (in a given electoral cycle).Footnote ¹³ A macro-level approach necessarily compromises on insights about causality, the underlying mechanisms and the motivations of voter behaviour. We therefore complement the macro analysis with an experimental analysis of individual-level behaviour below.

We examine three different outcomes: the vote for non-mainstream parties; electoral turnout; and party system polarization. We identify non-mainstream parties based on the party family classification by the Comparative Manifestos Project (CMP) (see also Spoon and Klüver Reference Spoon and Klüver2019).Footnote ¹⁴ For our purposes, mainstream parties are those that support the current economic order and related economic policies, notably, low deficits and fiscal restraint. We classify social-democratic, Christian-democratic, conservative, liberal and agrarian parties as mainstream parties. Electoral abstention is measured as the share of eligible voters who do not participate in an election. Political polarization is the dispersion of positions of political parties, weighted by their vote shares. This indicator increases when more voters vote for parties at the fringes of the political spectrum. As in Dassonneville and Cakir (Reference Dassonneville and Cakir2021), we compute polarization as $\sqrt {\mathop \sum \nolimits_{i = 1}^n v_i{( {p_i-\bar{p}} ) }^2} $, where: $\bar{p}$ is the weighted mean of all the parties' ideological positions; p _i is the ideological position of party i; v _i is the share of votes that party i receives in an election; and n is the number of parties that participate in the election. To measure the positions of political parties, we use the left–right index from the ParlGov database, which integrates the results from various expert surveys.Footnote ¹⁵ The ParlGov index is time-invariant, which allows us to isolate the effect of voter decisions on polarization.

Figure 1 shows that the temporal patterns for all three outcome variables are straightforward. On average, the vote share for non-mainstream parties doubled between the 1980s and today. The non-mainstream party vote share increases sharply from the mid-1980s to 2000 and from 2009 onwards. Abstention also steadily increased, from below 20 per cent at the beginning of our period of analysis to almost 30 per cent at the end. Finally, average polarization increases considerably, with the sharpest increases between the mid-1980s and early 2000s, and again from the mid-2000s onwards.

Figure 1. Average non-mainstream party vote, abstentions and polarization over time.

Note: Average values across the 16 countries per year for each variable; y-axes of graphs show share of voters who support non-mainstream parties (left), share of voters who abstain from voting (middle) and the dispersion of positions of political parties, weighted by their vote shares (right) as described in section 3.1.

For our independent variable – fiscal consolidation – we use the events-based measure by Devries et al. (Reference Devries2011) and updated by Alesina, Favero and Giavazzi (Reference Alesina, Favero and Giavazzi2019).Footnote ¹⁶ Events-based measures of fiscal consolidation qualitatively identify the timing and magnitude of fiscal consolidation packages using policy documents from governments and international organizations. This is now the standard approach of measuring fiscal consolidations because it directly captures fiscal policy decisions (Alesina, Favero and Giavazzi Reference Alesina, Favero and Giavazzi2019). Out of the 166 legislative periods in our dataset, ninety-one periods include at least one consolidation event. Among these, the degree of fiscal consolidation varies considerably. A median consolidation package aims at reducing the fiscal deficit by 1.9 per cent of GDP, with a standard deviation of 2.21.

Our control variables largely follow from the literature on party system change and polarization. These include macroeconomic conditions (represented by real GDP growth and the unemployment rate), the degree of international openness and net migration. These variables enter our model as changes from one legislative period to the next. We also account for early elections, single- versus multi-party government, and the permissiveness of the electoral system by controlling for the electoral system (majoritarian versus proportional) and the magnitude of electoral districts. Some of these variables mostly account for cross-country variation, while our focus is on over-time variation within countries. Nonetheless, they account for changes after electoral systems change (Best Reference Best2012) and possibly affect how easily voters switch from one party to another.Footnote ¹⁷ Table A1 in the online Appendix shows the summary statistics.

Since we are interested in gradual change in electoral behaviour over time, we use the changes in the outcome variables from one election to the next as dependent variables. This also addresses the econometric problem that the outcome variables are not stationary.Footnote ¹⁸ Our analysis uses the following empirical specification:

$$\Delta y_{i, t} = \beta _0 + \beta _1{\rm Austerit}{\rm y}_{i, t-1} + \beta _2^{\prime} {\rm X}_{i, t-1} + d_t + c_i + \epsilon _{i, t}\eqno , \;$$

where: i refers to the country and t represents an election; y _i,t refers to either votes for non-mainstream parties, electoral abstentions or polarization; Austerity_i,t−1 is the amount of fiscal consolidation in the legislative period prior to the election; ${\vector X}_{i, t-1}$ includes the control variables; d _t are period fixed effects; c _i are country fixed effects; and $\epsilon _{i, t}$ is an error term. We also use alternative empirical models, notably, models in levels, rather than differences, with a lagged dependent variable and with a time trend. As we show in the Online Appendix, the results from these models are the same.

Mainstream Party Support and Positions

For all elections after substantive fiscal adjustments, the vote share of government parties declined, often considerably. The combined decline can be as little as 1 percentage point (Finland in 1995) or as high as 30 percentage points (Ireland in 2011).Footnote ²¹ A closer look also confirms that the mainstream parties in opposition presented a credible alternative for some, but not all, dissatisfied voters. In almost all cases, the mainstream opposition did not fully absorb the loss of support for government parties. For instance, the Finnish Social Democrats or the Portuguese Socialists, in opposition in 1995 and 2015, respectively, gained voters after austerity measures, but these gains were substantially lower than the decline in the combined vote share for government parties.

Non-mainstream Party Support

The difference between government party losses and mainstream opposition gains was absorbed by non-mainstream parties. All but one austerity episode was followed by an increase in the vote share of non-mainstream parties. Prior to the Great Recession, this increase varied between 2 percentage points in Finland to slightly over 5.5 percentage points in Sweden. After the Great Recession, this increase varied between 8 percentage points in Portugal and 14.5 percentage points in Spain. The type of non-mainstream parties that benefited from austerity varied widely. While in Finland, leftist fringe parties, such as the Social Democratic Party and the Left Alliance, experienced an increase in voter support, Sweden saw an increase in the support of the conservative Christian Democrats (Kd) and the leftist/communist Vänsterpartiet. After the Great Recession, we often see parties to the left of the mainstream parties winning votes, for example, Podemos (0 per cent to 12.7 per cent) in Spain, the Portuguese Bloco de Esquerda (5.4 per cent to 10.6 per cent) and the Irish Worker's Party.

Turnout

We also see an increase in abstention in five out of ten cases. The tendency in abstention after fiscal adjustments is generally in the expected direction, though less pronounced than for non-mainstream party vote.

Survey and Experiment Design

We now turn to providing micro-level evidence of the mechanisms that create the macro-level patterns described in the previous sections. In a survey experiment fielded in four countries, we examined voter reactions to different fiscal austerity proposals from the main centre-left and centre-right parties. This means that we can test which parties voters support if both mainstream parties advocate austerity.

Importantly, this experimental approach allows us to vary the positions of the main political parties towards austerity. In an observational study, assessing how the main parties' positions on austerity matter for vote choice is challenging as many party- and country-specific factors co-vary together with the policy option pursued. Indeed, a key counterfactual, namely, that either both mainstream parties or even just the mainstream left party oppose austerity, is arguably rarely observed. Moreover, an experiment allows us to present specific, clear policy stances by mainstream parties, so we can be sure that behaviour is driven by responses to the policy dimension we manipulate. Moreover, as argued earlier, it is difficult to gather data on opposition party responses to government austerity programmes.

We conducted original survey experiments in the UK, Germany, Portugal and Spain, cases chosen for multiple reasons.Footnote ²² First, a survey in multiple countries allows us to uncover commonalities in responses across different contexts, enhancing our confidence in the generalizability of the results. Secondly, voters in the different countries were exposed to differing degrees of austerity in the recent past. Portugal and Spain experienced a debt crisis and received international bail-out packages; the UK was hit by a short-term financial crisis and long-term austerity, but was not bailed out internationally; and Germany has proved comparatively resilient. Thirdly, the countries also have different party systems, which creates variation in the types of contestation around austerity. In Spain and Germany, party-based opposition to austerity is strongest on the radical left (Podemos and Die Linke). In Portugal, the radical left is opposed to austerity, but so is, in a more moderate way, the Socialist Party. In the UK, Labour used to take a market-friendly approach in previous decades but moved towards a strong anti-austerity stance during the Corbyn years.

We conducted an experiment embedded in population-based surveys. The surveys were implemented by respondi, making use of different country-specific online access panels. Quotas based on age and gender were implemented. The sample is restricted to voting-age nationals. In each country, we surveyed around 2,200 individuals.Footnote ²³ We presented respondents with hypothetical scenarios concerning policy proposals by the two main centre-left and centre-right parties listed in Table 3. In the experiment, we also varied which party was described as the government party and which as the main opposition party. We do this to be able to examine whether the credibility of the announcement among voters differs for government and opposition parties.

Table 3. Main political parties per country

To illustrate the details of the experiment for the UK, we present a possible vignette in Table 4. Before respondents saw the vignette, they were informed that their country has experienced high fiscal deficits and rising public debt for several years. The vignettes then presented respondents with the following varying information: party in government, main opposition party and the policy proposal of each party. The treatment (policy proposal in the second row) could take one of the following two values: ‘Cut spending and increase taxes’ or ‘Keep government spending stable without tax increases’. This yields four different combinations of policy proposals: (1) both parties want to cut spending; (2) the centre-left party keeps spending as is, while the centre-right party cuts spending; (3) the centre-right keeps spending as is, while the centre-left cuts spending; and (4) both parties keep spending as is. We focus on the comparison between the ‘both cut’ scenario and the two counterfactual scenarios (2 and 4), where either the mainstream left or both mainstream parties keep spending as is. We disregard the third option because it is unrealistic that the centre-right keeps spending as is, while the left cuts. However, we kept this option in the design of the experiment for the sake of completeness.

Table 4. Experimental set-up

Each respondent was presented with three – randomly selected – vignettes out of the eight possible vignettes (four possible proposal vignettes × two possible government–opposition assignments, as outlined above). After each vignette, the respondents had to indicate which party they would vote for given the policy scenarios presented. Specifically, we asked: ‘For which party would you vote in the next election?’ This became our outcome variable.Footnote ²⁴ All political parties were included as response options, not just the two main parties. We also allowed respondents to state ‘Would not vote’ and ‘Don't know’. Respondents' reactions to these vignettes indicate how the combination of party and policy proposal influenced their vote choice.