Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2008

36 Pages Posted: 1 Aug 2011 Last revised: 22 Nov 2017

Jacopo Ponticelli

Kellogg School of Management - Department of Finance

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 21, 2017

Abstract

Does fiscal consolidation lead to social unrest? Using cross-country evidence for the period 1919 to 2008, we examine the extent to which societies become unstable after budget cuts. We find a positive correlation between fiscal retrenchment and instability. Expenditure cuts are particularly potent in fueling protests; tax rises have only small effects. We test if the relationship simply reflects economic downturns, using cyclically adjusted fiscal variables and expenditure shocks from discretionary policy decisions, and conclude that this is not the case. The link between cut-backs and unrest only appears in democratic regimes. Peer-to-peer media penetration strengthens the effect.

Keywords: demonstrations, Europe, government deficits, instability, public expenditure, riots, unrest

JEL Classification: H40, H50, H60, N14

Suggested Citation

Ponticelli, Jacopo and Voth, Hans-Joachim, Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2008 (November 21, 2017). Available at SSRN: https://ssrn.com/abstract=1899287 or http://dx.doi.org/10.2139/ssrn.1899287

Jacopo Ponticelli

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

Hans-Joachim Voth (Contact Author)

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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