What Ended the Great Depression? Re-Evaluating the Role of Fiscal Policy

Conventional wisdom contends that fiscal policy was of secondary importance for the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilised gold inflows to increase the money supply. Often this is shown by measuring the fiscal multipliers and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.

Choosing the Path of Austerity: How Policy Coalitions Shape Welfare-policy Choices in Periods of Fiscal Consolidation

In general, fiscal adjustments are associated with significant reductions in social spending. Hence, the welfare state is not spared from austerity. Because the welfare state is still central to party competition, this is electorally risky. The paper addresses the following questions: Do left parties differ from their centrist and rightist competitors in the design of austerity measures? And does government type has an impact on the extent to which austerity policies rely on social spending cuts? By comparing 17 OECD countries between 1982 and 2009 we show that if governments embark on a path to austerity, their ideology does not have a significant effect on the magnitude of welfare state retrenchment. However, if major opposition parties and interest groups rally against social spending cuts, a broad pro-reform coalition is a crucial precondition for large fiscal consolidation programs to rely on substantial cuts to social security.

The Territoriality of Fiscal Solidarity: Comparing Swiss Equalisation with European Union Structural Funding

This article theorises the territorial solidarity and fiscal federalism and compares Switzerland with the European Union. While inter-territorial solidarity is a prerequisite for legitimate fiscal equalisation, such equalisation in turn also contributes to the legitimacy of and solidarity within federal political systems. By cutting across territorial and ethno-national communities, fiscal transfers often contribute to both a “civic” sense of belonging and a “cosmopolitan” identity. After placing types and degrees of (inter-)territorial solidarity at the heart of our conceptual perspective, we discuss the effects of such solidarity through an analysis of two different forms of “federal” equalisation. Comparing the recently reformed Swiss fiscal equalisation system with the EU structural funds allows us to infer if, and how, the fiscal dimension of federalism matters for feelings of solidarity, reciprocity, unity and, ultimately, for the legitimacy of the very (nation-state or Union) structures that are to contribute to the ever-growing prosperity and happiness of their people(s). In Switzerland, a civic understanding of nationhood and cross-cutting cleavages were necessary conditions for extensive, effective and legitimate fiscal equalisation. We infer that, for the EU, this means that strengthening the equalisation component of the structural funds would contribute to an ever closer Union in a political sense: because fiscal equalisation and inter-territorial solidarity are interdependent, reinforcing the one also means cementing the other. Future studies of the EU and federal-type arrangements are advised to pay more explicit attention to the solidarity-element of territoriality – or the territoriality of (fiscal) solidarity.

Choosing the path of austerity: how parties and policy coalitions influence welfare state retrenchment in periods of fiscal consolidation

What are the conditions under which some austerity programmes rely on substantial cuts to social spending? More specifically, do the partisan complexion and the type of government condition the extent to which austerity policies imply welfare state retrenchment? This article demonstrates that large budget consolidations tend to be associated with welfare state retrenchment. The findings support a partisan and a politico-institutionalist argument: (i) in periods of fiscal consolidation, welfare state retrenchment tends to be more pronounced under left-wing governments; (ii) since welfare state retrenchment is electorally and politically risky, it also tends to be more pronounced when pursued by a broad pro-reform coalition government. Therefore, the article shows that during budget consolidations implemented by left-wing broad coalition governments, welfare state retrenchment is greatest. Using long-run multipliers from autoregressive distributed lag models on 17 OECD countries during the 1982–2009 period, substantial support is found for these expectations.