Cutting Spending Is Good Politics

Over at U.S. World and News Report, Nancy Pfotenhauer has a good piece showing that cutting spending is not only good economics, it’s also good politics.

But while we know that spending cuts are good economics, do they make sense politically? Interestingly enough, a new International Monetary Fund book shows that they do. After reviewing more than 60 instances of fiscal adjustments in Canada, France, the United States, Japan, Germany, and Italy, the authors found that ambitious fiscal plans aren’t penalized by voters. An interesting paper by Ben Broadbent and Adrian Paul called “Fiscal tightening need not be electorally costly, but it will test government unity” confirms these results. As they put it, “It is commonly assumed that cuts in government spending will be both economically painful and electorally costly.  Neither is borne out in the data.”  And, if that is not enough to make spin-doctors scratch their heads, the authors further conclude that while folks assume significant spending reductions will cost politicians at the polls, “if anything, the opposite is true.”

Or how about examples closer to home. The fiscal data shows that Reagan and Clinton were the most effective Presidents since World War II in controlling the growth of federal spending. And both of them served two terms and left office still riding high in the polls. In Canada, meanwhile, a Liberal Party government during the 1990 imposed a hard spending cap and was rewarded with re-election.

The whole thing is here. (For more on the how cutting spending is good economics and politics, read this post by Dan Mitchell about the reforms in Canada.)

A few weeks ago, my colleague Matt Mitchell made the case that maybe what we really need to address our long term debt problem is a super-Democrat (to echo the failed supercommittee):

Only Nixon could go to China. Only Carter could deregulate. Only Reagan could sign the first arms reduction treaties. Only Clinton could sign welfare reform. Lasting and meaningful reforms often require politicians to cross the ideological divide. Given the partisan divide right now, it is very difficult for me to imagine that any Republican president would be successful in reducing entitlement spending. But a Democrat could do it.

And one piece of evidence for this is a 2004 paper in the Journal of Public Economics by the economist José Tavares. He writes:

“In a panel of large fiscal adjustments in OECD countries during the last 40 years, we find evidence that left-wing and right-wing cabinets are partisan: the left tends to reduce the deficit by raising tax revenues while the right relies mostly on spending cuts. Our testable hypothesis is that cabinets can signal commitment by undertaking fiscal adjustments in ways that are not favored by their constituencies. In other words, the left gains credibility when it cuts spending while the right becomes more credible when it increases tax revenues. Probit estimates of the determinants of persistence in fiscal adjustments confirm that spending cuts by the left and tax increases by the right are associated with persistent adjustments.”

So if it is spending cuts that we need, then these cuts are likely to be more sustainable (“persistent”) if they are executed by a left-leaning government.

What I want to know is, who’s the Democrat out there who will prove Matt right?

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the U.S. economy, the federal budget, homeland security, taxation, ...

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