From Stabilization to Austerity in OECD Countries: The Evolution

Most OECD countries have continued to struggle with the dilemma of nurturing economic growth and keeping budget deficits under control, regardless of the extent to which they anticipated and/or responded expeditiously and... [ view full abstract ]

Most OECD countries have continued to struggle with the dilemma of nurturing economic growth and keeping budget deficits under control, regardless of the extent to which they anticipated and/or responded expeditiously and competently to the Global Financial Crisis (GFC). The ‘new low growth’ international environment, together with the fact that China has reported economic growth rates half their former levels (and may even be teetering on the brink of crisis itself), has greatly complicated the trajectory back to fiscal consolidation across the OECD. When OECD nations emerged from the nadir of the GFC in 2009 many governments publicly made strident commitments to prioritize fiscal consolidation and rebalance their budgets.

For a while there was virtually an international ‘race’ to re-consolidate fastest with Finance ministers attempting to out-do each other over the pace of fiscal consolidation. But, in the seven years since the worst effects of the GFC, few governments have managed to balance their budgets and many have experienced further deterioration in their budgetary positions, including mounting debt levels consumed through structural recurrent overspending. This paper builds on prior comparative research exploring the evolution of budgetary systems and fiscal capacities to examine the strategies governments have employed in order to deal with sustained austerity and limited room to manoeuvre (Wanna et al. 2003; 2010; 2015). We will explore the degree to which governments have managed to impose fiscal discipline after the GFC, perhaps using new techniques of budgetary control and/or investing in new expenditure tracking systems using the latest technologies.

We ask whether national governments committed themselves to tough austerity measures (for instance, by announcing detailed intentions) or remained tentative and vague about fiscal constraints, and whether governments were able to actually impose whatever their desired consolidation strategies turned out to be. We are interested in the nature of austerity measures and whether governments have adopted major cutbacks or minor savings measures (‘nickel and diming’ adjustments), whether forms of austerity featured broader-based (across-the-board) expenditure reductions or were more targeted to specific programs and constituencies.

There are also questions of the extent to which fiscal reallocation has been attempted either between policy sectors and between jurisdictional levels perhaps disproportionately imposing fiscal constraints on lower levels of government. We will also assess whether nations have opted primarily for expenditure control strategies as opposed to revenue restoration strategies (tax increases or awaiting rising revenues from currently sluggish rates of economic growth). The range of national different responses to the post-crisis fiscal problems, partly a function of extant budgetary systems but also partly due to responses to particular circumstances, suggests a more granular round of cases studies of fiscal conditionality is necessary.