Many EU countries are pursuing fiscal consolidation to bring down their deficits. We provide empirical evidence that austerity packages drive measurable increases in political instability: government approval declines, while the probability of government crises and protest activity rises in the short term. Public support falls more sharply still when consolidation lands during an economic downturn or relies solely on spending cuts. The deterioration in economic activity that follows fiscal tightening accounts for most of the drop in popularity. Consolidation measures designed to limit those contractionary effects may therefore help to safeguard political stability.

In many EU member states, budget deficits and public debt ratios still sit well above their pre-pandemic and pre-energy-crisis levels. Governments are under mounting pressure to consolidate public finances and comply with the EU’s fiscal rules. France, Finland, Austria, Belgium, Romania, and Slovakia are already among the member states pursuing a contractionary fiscal stance, and the rules will require further tightening across the bloc in the coming years.

Public debate typically centres on the economic and social consequences of austerity. Our study turns instead to its political implications. The success of fiscal consolidation depends critically on whether it secures broad public support. If it triggers political instability, it may ultimately also undermine economic performance.

Our new study analyses how tax increases and spending cuts affect government popularity, the likelihood of government crises, and protest activity, drawing on state-of-the-art empirical methods. The analysis relies on internationally comparable measures of government approval and political events, together with the action-based International Monetary Fund (IMF) dataset on consolidation since the 1980s, which records both the size and the timing of fiscal measures. The data cover 17 OECD countries from 1980 to 2020: Austria, Australia, Belgium, Denmark, Germany, Finland, France, the United Kingdom, Ireland, Italy, Japan, Canada, the Netherlands, Sweden, Spain, Portugal, and the United States.

The political cost of austerity

The results capture the average political effect of a fiscal consolidation worth one percentage point of GDP. For context, EU fiscal rules currently require several member states to improve their structural fiscal balances by at least 0.5 percentage points of GDP each year throughout the multi-year adjustment period now under way.

Across the advanced economies covered in our analysis, government approval falls by about 1.6 percentage points within a year of a consolidation of this size. The decline is driven, above all, by the weaker growth and employment outcomes that follow fiscal tightening.

Consolidation also raises the short-term probability of anti-government demonstrations by 7.5 percentage points and of general strikes by 7.8 percentage points. The likelihood of a major government crisis — one that threatens the survival of the government — climbs by 17.5 percentage points. These effects are short-lived, however, and fade over the medium term.

Governments typically pursue consolidation to stabilise public financing costs; our findings underline its political price tag. Fiscal tightening does not automatically produce political instability, and most consolidation packages do not end in widespread protests or government collapse. But the short-term distributional conflicts they generate, and the losses they impose on organised political interests, measurably raise the risk of government crises, protests, and strikes.

Timing and design

Our results show that fiscal consolidation barely dents government approval during economic upswings. In downturns, by contrast, the effect is significant and negative.

In a downturn, approval ratings fall by roughly 2.1 percentage points within a year in response to a consolidation worth one percentage point of GDP. In an upswing, the effects are small and statistically indistinguishable from zero. The pattern suggests that the macroeconomic costs of consolidation — sharper in a slump — indirectly shape public support for the government’s restrictive fiscal stance.

For EU member states, that implies the current consolidation path would carry far greater political risks if it coincided with a downturn. So far, several countries have tightened during a phase of recovery. Although that recovery has not been fully self-sustaining, it has nonetheless improved the conditions for fiscal policy. External shocks — including the escalating conflict in the Middle East and the associated rise in energy prices — are already beginning to weigh on economic conditions, and fiscal consolidation may therefore start to bite more sharply into government popularity.

Composition matters as much as timing. Our study shows that consolidation packages relying solely on spending cuts produce a sharper fall in government approval than those that also include revenue-side measures. Incorporating tax-based measures can therefore mitigate the political damage and reinforce stability. In particular, fiscal tightening that places a heavier burden on financially well-off actors — who can absorb the income loss by drawing on savings or reserves — may also reduce the adverse macroeconomic effects of consolidation in the first place.

Voters’ verdicts on government performance, captured by approval ratings, shape election outcomes; approval scores and protest activity provide the earliest warning signs of eroding support. Existing research shows that austerity measures — especially in difficult economic times — have contributed to the rise of populist parties in Europe. The design of consolidation packages matters, then, far beyond the public accounts. Their timing and composition can determine whether fiscal repair shores up political stability or quietly corrodes it.

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