Rethinking Austerity’s Political Costs: The Role of Export Versus Domestic Demand Dependence

Lucio Baccaro and Alessia Aspide

Public spending cuts and tax hikes, known as austerity measures, remain a defining feature of Europe’s political and economic landscape. While often prescribed as a universal remedy for managing public finances, austerity reduces citizens’ disposable income, potentially affecting internal consumption, and simultaneously boosts the competitiveness of exports, especially when austerity is based on expenditure cuts. While research is divided on the electoral consequences of austerity at the national level, this project takes a different angle by hypothesizing that austerity’s electoral costs depend on economic structure. It theorizes that austerity is less likely to trigger electoral punishment the more the economy depends on external demand. As such, the project contributes to the growth model literature, extending its analytical focus to include how aggregate demand components shape political reactions to externally imposed fiscal consolidation, and advancing our understanding of the conditions that shape citizens’ reactions to austerity.