Do as I say, not as I do? Economists policymakers and fiscal consolidation

Abstract

Do individual policy-makers matter for fiscal policy and, if so, under which conditions do they matter the most? Does a formal training in economics lead policymakers to implement a distinct set of fiscal policies? Do economists-turned-policymakers follow through with what they presumably teach in their classroom? This article aims to answer these questions with respect to fiscal consolidation (austerity) by analyzing a sample of Western and European countries between 1978 and 2019. By focusing on a subset of fiscal policies that are weakly orthogonal to the business cycle, I abstract from the most contentious debates in macroeconomics which revolve around the ‘best’ fiscal response to economic shocks (the infamous austerity vs stimulus debate). As such, I investigate the effects of economists on fiscal policy in a most-likely-case approach, i.e. when economic theory is by and large in agreement on what the best course of action is. Across a variety of specifications, modeling choices, estimators, and temporal and spatial sub-samples, I find no evidence that either the Head of the Executive or the Finance Minister's formal education in economics is (unconditionally) associated with fiscal consolidation policy. Nevertheless, the analysis reveals some political and institutional conditions under which economists-turned-Heads of Government are indeed more likely to implement fiscal consolidation. Governments led by economists are more likely to implement fiscal consolidation when the government is less fractionalized, when they are supported by a parliamentary majority, and when there are fewer institutional constraints on the executive.