DP8513 Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2008

Author(s): Jacopo Ponticelli , Hans-Joachim Voth

Publication Date: August 2011

Date Revised: December 2011

Keyword(s): unrest , instability , government deficits , public expediture , riots , demonstrations , Europe

JEL(s): H40 , H50 , H60 , N14

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP8513.asp.asp

Does fiscal consolidation lead to social unrest? Using cross-country evidence for the period 1919 to 2008, we examine the extent to which societies become unstable after budget cuts. The results show a clear correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the case. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest after austerity measures. Growing media penetration does not strengthen the effect of cut-backs on the level of unrest.