Deficit or Austerity Bias? The Changing Nature of Canadians’ Opinion of Fiscal Policies

Abstract

Public choice theory suggests that citizens have a deficit bias: they approve governments for running large deficits that increase spending or reduce taxes. In contrast, others contend that citizens reward governments for balanced budgets. We contribute to this debate by modelling a popularity function for the Canadian federal government and show that the impact of fiscal policies on the executive's popularity changes over time. Until the early 1990s, Canadians preferred budget deficits. As deficits became unsustainable during the economic crisis of the early 1990s, the government shifted its fiscal policy paradigm, as balancing the budget became its primary fiscal objective and citizens were actively concerned about the deficits. Since 1993, citizens’ deficit bias morphed into an austerity bias: executive approval increases when deficits are reduced. These findings contribute to comparative political economy research by assessing how policy regimes and public preferences reinforce each other.

The Right and the (Provincial) Welfare State: The Case of the Coalition Avenir Québec Government

“…The significant increase of expenditures in the 2022–2023 budget postpones the return to balanced budgets to 2027–2028, whereas the government could have achieved surpluses four years earlier had it chosen to maintain spending growth to projected budget levels (Dinan and Tellier, 2022). Not only did the CAQ government follow a shift in public opinion that has become more tolerant of deficits over time (Jacques and Bélanger, 2022), it also consciously decided to move toward the centre to satisfy public demand for social spending.…”

Business politicians and fiscal consolidation

“…118 Thereafter, citizens' deficit bias morphed into a balanced budget bias, with Canadians' approval of the government increasing following deficit reductions. 119 Hence, this case selection guards against the inferential threats attributable to the possible endogeneity of leadership change and tenure to the electorate's (conservative) fiscal preferences.…”

“…In the economic realm, and in fiscal and budget policy in particular, Mulroney's government is characterized in the scholarly literature as particularly proactive, "unveiling one reform after another, virtually from the day it assumed office." 126 Such an interventionist stance was facilitated by the fact that, during this period, the process of centralization of power in The data comes from Jacques and Bélanger (2022). Unfortunately, the series does not cover the first Mulroney government as it starts in 1988.…”