This dissertation is about how governments in advanced industrial democracies make budgetary choices under constraints. These governments' fiscal room to maneuver has been decreasing in recent decades, as tax revenues fail to match rising demands for spending. At the same time, fighting climate change, building the infrastructure for tomorrow’s economy and adapting public finances to the challenges that an aging society presents all involve making sacrifices in the present to build a more prosperous future. This dissertation reveals that governments rarely choose to make such sacrifices in the face of budgetary constraints. Instead, when governments implement austerity packages, they tend to prioritize policies benefiting large and influential constituencies and those offering short-term benefits, while cutting back on long-term investments.
Given this finding, this dissertation then asks: 1) Under what institutional and political conditions will governments prioritize long-term investments? 2) What is the electoral and political impact of austerity? and 3) Who is willing to pay for long-term investments?
In response to the first question, this dissertation reveals that government partisanship can marginally affect policy choices under austerity. However, the overall tendency to prioritize visible, short-term spending is mediated more by institutions and electoral politics than by partisanship. Governments are more likely to prioritize long-term investments when political institutions share power between actors and when electoral competitiveness is low.
To answer the second question, this dissertation investigates the impact of austerity on government approval. It finds that fiscal consolidations based on spending cuts have a negative effect on government approval, especially during recessions, while the effect of tax increase is insignificant.
Finally, given that consumption is prioritized, future-oriented policy decisions are likely to require additional funds. In response to the third question, the last chapter of this dissertation identifies which constituencies are willing to pay higher taxes. It shows that a high socio-economic status, along with a left-wing ideology, are necessary conditions to accept a higher tax burden. This final chapter argues that willingness to pay taxes contributes to tensions within the typical center-left coalitions.
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