An undergraduate student I supervise, Giulia Di Pierro, is finishing up her thesis and has examined 48 episodes of expansionary fiscal policies in 19 OECD countries (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Norway,the Netherlands, Portugal, Spain, Sweden, Switzerland and United Kingdom) and evaluates the impact of such policies on re-electoral probability for the Government.
The goal of her work was to ask the following question: if a Government before the elections adopts an expansionary fiscal stance (less taxes, more spending) will it punished or rewarded by voters?
The answer she gives is … it depends (a bright future she has as an economist!). It depends on where the economic cycle stands when such policies are implemented. If the economy is already booming on its own, voters tend to punish governments more than if they were ina downturn or moderate cycle.
She divided the 48 episodes into 2 blocks of 24, arranged according to the growth level the
year before the fiscal decision: one contains government choices during GDP expansions
ranging from +4.1% to 1.5%, the other milder growth of +1.2 to plain recessions of at most -2.9%.
Well, in the first group of positive episodes, a government gets re-elected only 21% of the times, against 58% in the second group!
This result is even more surprising if one considers that a Government with low growth to begin should have lower chances of winning than one with high growth: but it seems that a Government that fights for its citizens during a downturn with lower taxes or greater spending is well considered and does not risk so much in being expansionary.
Politicians, take note ….
PS: if anyone would like to hint that maybe growth is something that politicians should forget since it is not rewarded by voters, think again. Indeed, by looking at the 20% (and not 50%) of most booming episodes (from +4,1% to +3,1%) chances of being re-elected are not 21% but 50%!