The Political Economy of Austerity: Understanding Variation in Distributive Outcomes in Southern Europe

The economic crisis has had particularly serious social consequences in the debtor states of the Eurozone, which have had to impose pro-cyclical austerity policies to address their external debt positions.  The distributional impact of the crisis, however, has varied significantly, with Greece seeing a particularly strong rise in disposable income inequality, followed by Spain, Italy, and Portugal in that order. This article argues that the burden of “austerity” has been borne differently in the four countries due, in part, to differences in the balance struck by governments between tax, benefit, labour market regulation, and public pay decisions.  The article explores the political dynamics behind the different mixes of austerity measures in the four countries, relating these to differences in pre-existing regulatory regimes, political configurations, and the permeability of political parties to different constituencies and advocacy coalitions.