Why Do Consolidations Persist? the Political Economy of Fiscal Adjustment in a Long-Term Perspective

Comparative political economists have developed a deep understanding of the conditions and forces that make macroeconomic policy reforms possible. However, much less attention has been devoted to the conditions under which policy reforms persist. This paper uses the example of fiscal consolidation to investigate the politics of persistent versus merely temporary macroeconomic policy reform. It compares countries which managed to consolidate their budgets for the long term with countries that made strenuous consolidation efforts but relapsed into heavy borrowing after a time.

The paper shows that adjustment is more conflictual – and, hence, politically more difficult – in fiscal regimes where the beneficiaries and contributors of significant spending and revenue arrangements are more clearly delineated within society, because the winners and losers of adjustments to any part of the budget are more clearly defined. In such fiscal regimes, adjustment is more difficult and even if it happens, it is less likely to be lasting. Fiscal regimes lend themselves more easily to lasting adjustment if the beneficiaries and contributors of large government programs overlap more."