Explaining the Magnitude and Composition of Fiscal Austerity Episodes in the European Union

Why, in spite of party ideology, most governments in the European Union (EU) have in recent years adopted fiscal consolidation policies? What explains variation in those policies? These are puzzles that have received considerable academic attention, increasing our understanding on the politics of fiscal consolidations. Yet, there is still no consensus in the literature in terms of whether the ideology of governments and their size – in terms of parliamentary seat share – contribute to explaining the magnitude and composition (whether spending- or tax-based) of the recent fiscal consolidations episodes in the EU. Moreover, most analyses tend to use OECD data pre-financial crisis (before 2008) to understand post-financial crisis austerity policies in the European Union. The contribution of this paper is twofold. First, we introduce an original dataset of fiscal consolidation narrative episodes in the EU. We provide evidence on how our approach provides robust results compared to other influential narrative datasets. Second, we test whether government size and ideological coherence contribute to explaining the magnitude and composition of fiscal consolidations. After controlling for outliers and other factors, we find that neither of these two key explanatory variables explain the adoption and the magnitude of expenditure-based consolidations. However, greater size of right-wing governments is associated with greater magnitude revenue-increasing consolidations.