Austerity, Economic Vulnerability, and Populism

Governments have repeatedly adjusted fiscal policy during the past decades. We examine the political effects of these adjustments in Western countries since the early 1990s using both district-level election outcomes and individual-level voting data. We expect that austerity increases populist votes, but only among economically vulnerable voters, who are hit most by austerity. Following the political economy literature, we identify economically vulnerable regions, looking at the share of low-skilled workers and share of manufacturing production. The results from a difference-in-differences analysis show that austerity increases support for populist parties in economically vulnerable regions, but austerity has little effect on voting in economically less vulnerable regions. These findings are confirmed by the analysis at the individual level. Our results suggest that the success of populist parties across Europe critically hinges on the governments failure to protect the losers of structural economic change. The economic origins of populism, therefore, are not purely external, but the populist backlash is triggered by internal factors, notably public policies.