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2. Welfare losses, preferences for redistribution, and political participation: Evidence from the United Kingdom’s age of austerity
- Author:
- Patricia Justino, Bruno Martorano, and Laura Metzger
- Publication Date:
- 05-2023
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper studies the effect of austerity on forms of political participation—including voting, appealing for reform, and peaceful protesting—and the role of preferences for redistribution in shaping the relationship between individual exposure to austerity and political participation. The paper focuses on the case of the United Kingdom (UK) where, between 2011 and 2019, wide-ranging austerity policies were introduced to deal with high public debt in the aftermath of the 2007–08 financial crisis. Cuts to government spending on public investment, services, and social protection, especially during the initial fiscal consolidation phase of 2011–15, led to significant welfare losses for the population. We provide evidence from observational microeconomic data and a large-scale online experiment in the UK showing that individual exposure to welfare losses from austerity increases political participation and strengthens preferences for government redistribution. The experimental data suggests that changes in individual preferences for redistribution significantly shape the effect of austerity on political participation.
- Topic:
- Austerity, Welfare, Redistribution, and Political Participation
- Political Geography:
- United Kingdom and Europe
3. Jordan: Another Peak in a Multi-Year Crisis
- Author:
- Joshua Krasna
- Publication Date:
- 03-2023
- Content Type:
- Commentary and Analysis
- Institution:
- Foreign Policy Research Institute (FPRI)
- Abstract:
- Jordan recently saw violent protests over high fuel prices stemming from IMF-mandated austerity measures. These highlighted domestic malaise, driven by economic crisis, repressive government measures in recent years, and widespread despair of the possibility of near-time improvement of the economic and political situation. While the regime has presented a long-range plan for political reform leading to parliamentary government in a decade, this has met with apathy and lack of belief. This domestic crisis dovetails with a low intensity “hot war” on the northern border against the smuggling of Captagon (Fenethylline, a synthetic amphetamine widely used in the region) with Syrian official connivance; and a new Israeli government seemingly intent on pursuing policies in Jerusalem and the West Bank which threaten Jordan’s interests. This is not the first time, and will not be the last time, that Jordan faces domestic pressures and external challenges. However, the conflation of various challenges and crises, makes the current moment one of elevated, though not acute, concern.
- Topic:
- Reform, Protests, Crisis Management, Austerity, and Captagon
- Political Geography:
- Middle East and Jordan
4. Paying with Austerity: The Debt Crisis and Restructuring in Sri Lanka
- Author:
- C. P. Chandrasekhar, Jayati Ghosh, and Debamanyu Das
- Publication Date:
- 12-2023
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- On April 12, 2022, Sri Lanka defaulted on external debt service commitments. Announcing the “pre-emptive default,” pending restructuring, the government also announced that it was suspending repayments due in 2022 on its external debt. By May, Sri Lanka was formally in default, becoming the first country in the Asia-Pacific region to default on debt in two decades. There were medium-term factors that underlay the crisis, not least of which was the chronic dependence on foreign finance, especially debt, to cover widening current account deficits that followed the IMF-inspired and dictated embrace of liberalization policies starting in the late 1970s. In recent years, following the global financial crisis and the end of the civil war in 2009, this dependence on external borrowings intensified. There was also a dramatic shift towards bilaterally, besides multilaterally, financed investment projects and increasing reliance on the bond market, partly to meet debt service commitments on accumulated debt. Given this vulnerability, a crisis was precipitated by a collapse in foreign exchange receipts during the Covid pandemic, due to falling exports, near-zero tourist arrivals and reduced remittances and the subsequent spike in the outflow of foreign exchange because of the speculation-induced rise in the prices of fuel and food. This paper details the events which culminated in the Sri Lankan debt crisis, assesses the appropriateness of the official, IMF-prescribed strategy of adjustment and debt restructuring, considers the experience with restructuring thus far, and explores alternatives that would have been, and could still be, less regressive and ensure sustainable development.
- Topic:
- Debt, Political Economy, Finance, Austerity, and Liberalization
- Political Geography:
- South Asia and Sri Lanka
5. IMF Social Spending Floors: A fig leaf for austerity?
- Author:
- Alexandros Kentikelenis and Thomas Stubbs
- Publication Date:
- 04-2023
- Content Type:
- Policy Brief
- Institution:
- Oxfam Publishing
- Abstract:
- The International Monetary Fund has said that it protects spending on education, health and social protection from cuts in its loan programmes through social spending floors. These measures are a welcome step forward, but are they effective? Analysis of all 17 IMF loan programmes (Extended Credit Facilities, or ECFs, and Extended Fund Facilities, or EFFs) for low- and middle-income countries during the first two years of the pandemic shows that these floors are deeply inadequate, inconsistent, opaque and failing. They are little more than a fig leaf for harmful austerity, which is driving inequality, poverty and suffering.
- Topic:
- Finance, Austerity, IMF, and Social Spending
- Political Geography:
- Global Focus
6. The Middle East and North Africa Gap: Prosperity for the rich, austerity for the rest
- Author:
- Alexandros Kentikelenis, Sahar Mechmech, Amine Bouzaiene, Rowaida Moshrif, and Nabil Abdo
- Publication Date:
- 10-2023
- Content Type:
- Policy Brief
- Institution:
- Oxfam Publishing
- Abstract:
- This briefing paper examines growing inequality in the Middle East and North Africa (MENA) region, focusing on Egypt, Lebanon, Morocco and Tunisia in the wake of the Covid-19 pandemic and the cost of living crisis. It examines the lack of adequate and just taxation systems across the region, particularly wealth taxes. This limits governments’ fiscal space and their spending on public services, resulting in gender discrimination and the widening of the MENA inequality gap to a chasm. The rich must pay their fair share. Austerity in the MENA region cannot become the norm. Taxing the profits of the region’s richest people will provide critical recourses that are currently lacking but would begin to close the chasm between the rich and the rest.
- Topic:
- Tax Systems, Economic Inequality, Austerity, and Prosperity
- Political Geography:
- Middle East and North Africa
7. Lessons for the Age of Consequences: COVID-19 and the Macroeconomy
- Author:
- Servaas Storm
- Publication Date:
- 03-2021
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Based on comparative empirical evidence for 22 major OECD countries, I argue that country differences in cumulative mortality impacts of SARS-CoV-2 are largely caused by: (1) weaknesses in public health competence by country; (2) pre-existing country-wise variations in structural socio-economic and public health vulnerabilities; and (3) the presence of fiscal constraints. The paper argues that these pre-existing conditions, all favorable to the coronavirus, have been created, and amplified, by four decades of neoliberal macroeconomic policies – in particular by (a) the deadly emphasis on fiscal austerity (which diminished public health capacities, damaged public health and deepened inequalities and vulnerabilities); (b) the obsessive belief of macroeconomists in a trade-off between ‘efficiency’ and ‘equity’, which is mostly used to erroneously justify rampant inequality; (c) the complicit endorsement by mainstream macro of the unchecked power over monetary and fiscal policy-making of global finance and the rentier class; and (d) the unhealthy aversion of mainstream macro (and MMT) to raising taxes, which deceives the public about the necessity to raise taxes to counter the excessive liquidity preference of the rentiers and to realign the interests of finance and of the real economy. The paper concludes by outlining a few lessons for a saner macroeconomics.
- Topic:
- Global Recession, Economic Inequality, Macroeconomics, Austerity, Public Health, COVID-19, Health Crisis, and Public Spending
- Political Geography:
- Global Focus
8. Local David Versus Global Goliath: Populist Parties and the Decline of Progressive Politics in Italy
- Author:
- Matteo Cavallaro
- Publication Date:
- 01-2021
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- This paper analyzes the role of local spending, particularly on social welfare, and local inequality as factors in the Italian political crisis following the adoption in 2011 of more radical national austerity measures. We employ two different methods. First, we develop an original database of municipal budgets. There we show that even the lowest level of social welfare spending, that offered by Italian municipalities, though also hit by austerity, was still able to moderate this national shock. We test three operationalizations of local spending: aggregate current expenditures, aggregate current expenditures on social services, and current expenditures disaggregated by function. We show that municipal current expenditures, particularly on social spending, significantly affected the post-2011 share of votes for the progressive coalition. The results also show that social spending, especially on education, significantly moderated the combined effect of national austerity and the economic crisis on voting for populist radical right parties, while no significant results appeared for populist parties in general. Local inequality appears to significantly enhance vote shares of populist radical right parties and populist parties in general. We caution that, although significant, the effect is not strong: that local policy and economic conditions can moderate national shocks but cannot reverse them. The second analysis relies on survey data to ascertain the individual-level mechanisms behind the role of local welfare. The paper argues that local economic inputs influence voters’ position on non-economic issues. Our results, however, do not identify any significant individual-level channel of transmission, be it cultural or economic.
- Topic:
- Politics, Elections, Inequality, Populism, and Austerity
- Political Geography:
- Europe and Italy
9. Emigration and Fiscal Austerity in the Greek Depression
- Author:
- Eugenia Vella
- Publication Date:
- 05-2021
- Content Type:
- Policy Brief
- Institution:
- Hellenic Foundation for European and Foreign Policy (ELIAMEP)
- Abstract:
- What is the role of emigration in a deep recession when the government implements fiscal consolidation? Our macroeconomic model simulations show that fiscal austerity accounts for 1/3 of the output drop in the Greek Depression and more than 10% of migration outflows. In a no-emigration counterfactual scenario, the model predicts a smaller output fall by 20%. We also uncover a novel bi-directional link between emigration and austerity. On the one hand, labour income tax hikes induce prolonged migration outflows, while spending cuts exert a smaller effect. On the other hand, emigration increases the required tax hike and time to meet a given debt target due to endogenous revenue leakage. In terms of unemployment, temporary gains from emigration are reversed over time.
- Topic:
- Austerity, Fiscal Policy, Emigration, and Economic Crisis
- Political Geography:
- Europe and Greece
10. Why a Traditional Austerity Plan Would Exacerbate Lebanon’s Woes
- Author:
- Mounir Mahmalat
- Publication Date:
- 01-2020
- Content Type:
- Journal Article
- Journal:
- Harvard Journal of Middle Eastern Politics and Policy
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- Following the eruption of mass protests in autumn 2019, Lebanon’s economy slid into a deep financial and economic crisis. Given the magnitude of Lebanon’s contemporary economic woes, a bailout program with participation by the International Monetary Fund (IMF) appears unavoidable. However, while a bailout program could avoid formal default and cushion the immediate effects of financial impasse, the austerity measures that will come attached are unlikely to achieve their goals. This article argues that in clientelist polities with weak states such as Lebanon’s, austerity programs carry the risk of leaving unaddressed the underlying inefficiencies that led to economic decline in the first place. Instead of prioritizing budgetary measures and spending cuts in a conditional reform program, international donors should seize this novel window of opportunity to legitimize a reform plan with popular demands. Measures to increase judiciary independence and political accountability in particular bear a larger potential than austerity measures alone to change politics and finally create a sustainable economic model.
- Topic:
- Financial Crisis, Austerity, Sustainability, and Economic Stability
- Political Geography:
- Middle East and Lebanon