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

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. To isolate the effect of policy decisions on social unrest we exploit variation in neighboring countries' past fiscal policies.

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

JEL Classification: H40, H50, H60, N14