Economic voting and the Great Recession in Europe

Transcription

1 Economic voting and the Great Recession in Europe A comparative study of twenty-five countries Troy Alexander Cruickshank August 2016 A thesis submitted for the degree of Doctor of Philosophy of The Australian National University Copyright by Troy Alexander Cruickshank 2016

2

3 Declaration This thesis is entirely my own work and has not previously been submitted for a degree or diploma in any university. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made in the text. Troy Cruickshank i

4

5 Acknowledgements I would like to thank first and foremost my supervisor Ian McAllister. Your advice to me has always proven sound, whether relating to my thesis specifically or to academic life more generally. I much appreciate your willingness to meet with me or read my work on short notice throughout my candidature. I would also like to thank the other members of my advisory panel, Juliet Pietsch, who frequently made herself available to discuss my work and whose advice is also much appreciated, and Andrew Banfield, who stepped up at the last minute to fill a formal vacancy. I would also like to thank the other people who have taken the time to discuss my work with me at various points throughout my thesis. These include, in no particular order, Hans-Dieter Klingemann, Jeffrey Karp, Jill Sheppard, Richard Johnston, Shawn Treier, Timothy Hellwig and Yusaku Horiuchi. Finally, I would like to thank my friends and family who have supported me in countless ways throughout this process. You know who you are. iii

6

7 Abstract The Great Recession of was the worst global economic crisis since the Great Depression of the 1930s. The effects were felt across most of the developed world and Europe was no exception. In many European countries, austerity programmes were implemented in response to the recession, which were often deeply unpopular. Many governments lost power in the years following the recession, with sometimes strikingly harsh swings against them. One notable example was the Irish election of 2011, in which the incumbent Fianna Fáil was reduced from 71 to 20 seats, by far its worst result at any general election since independence in This is congruent with the theory of economic voting, according to which voters will remove from office governments that fail to deliver economic prosperity. Although there is an enormous empirical literature supporting this theory, almost all of this evidence pertains to the typical boom and bust cycle of individual countries and little is known about economic voting during a severe global recession. The Irish result could have been indicative of the usual economic vote, a bolstered economic vote due to the unusual scale and severity of the crisis, or of dissatisfaction with the government s handling of the crisis. This thesis investigates whether the usual economic vote in European countries was altered during the Great Recession. This thesis uses survey data from the 2004, 2009 and 2014 waves of the European Election Studies (EES) to compare the economic vote in 25 European countries before, during and after the Great Recession. Multilevel methods are used to model voters support for the parties they could vote for at general elections in their own countries. Using this method, the results show that the economic vote was weaker during the crisis than it was either before or after. In order to explain these results, I analyse which parties voters tended to prefer after the crisis and how attitudes towards the European Union evolved over time. The results find that there was a shift away from centrist and pro-european parties towards radical and Eurosceptic parties following the crisis. In addition, support for the EU fell over the same time period and voters were increasingly likely to hold the EU responsible for economic conditions. Given the timing v

8 vi of these shifts as well as the association between European institutions and austerity policies, these findings suggest that the austerity programmes implemented in the wake of the crisis may have been a stronger catalyst for economic voting in Europe than the Great Recession itself.

9 Contents Introduction 1 1 Theory of economic voting: how economic conditions shape the vote What is economic voting? Perceptions or indicators: the link between the economy and the vote Sociotropic voting: do voters only care about themselves? Prospective and retrospective voting The vote choice process Reward and punishment: the logic of sanction Competent government: the logic of selection Political context and the instability problem The Great Recession Conclusion Measuring the economic vote Data sources and timing Measurement and variables Method of analysis Conclusion Voting in a time of crisis: how the Great Recession affected the economic vote Party support theory of economic voting Hypotheses Measuring the economic vote A spatial model of party support The prime minister s party and the economic vote vii

10 viii CONTENTS 3.6 A multiparty model of the economic vote Influence of the economy on mean party support Conclusion Clarity of responsibility during a global recession Clarity of responsibility: economic voting in different contexts The dimensions of clarity of responsibility Hypotheses How clarity affects the prime minister s party The effect of clarity on other parties Conclusion Extreme and Eurosceptic parties: the changing policy preferences of European voters Hypotheses Classifying parties How party position relates to voter support The changing fortunes of pro-european integration parties Left right position: a shift to the extremes Beyond left and right: social and economic dimensions Conclusion Economic abstention: turnout intention in the face of economic pessimism Theory Hypotheses Measuring turnout intention An economic model of turnout Conclusion Attitudes towards European integration and institutions Austerity and the European Union Measuring attitudes towards the European Union Hypotheses Attitudes towards further European integration Popular support for EU membership

11 CONTENTS ix 7.6 Attribution of responsibility for the economy Conclusion Conclusion: revising theories of economic voting 191 A Countries and parties 199 B Coefficient tables 213 References 237

12 List of figures 1.1 Basic principle of economic voting Outline of economic voting theory Vote choice process GDP growth in the European Union, Distribution of raw and centred party support Distribution of left right distance Distribution of prospective and retrospective assessments Relationship between prospective and retrospective assessments Data stacking process Support for incumbent prime minister s party by economic assessment Relationship between party support and left distance Predicted support for prime minister s party by left right distance Predicted support for prime minister s party by economic assessment Data classification structures Economic vote by year and incumbency status Predicted support by year and incumbency status Economic vote for dominant government party by time in office Economic vote for dominant government party by ideological cohesion Economic vote for dominant government party by institutional clarity Government and opposition economic vote by time in office Government and opposition economic vote by ideological cohesion Government and opposition economic vote by institutional clarity Relationship between party support and position Relationship between integration position and salience x

13 List of figures xi 5.3 Party support by position on European integration Relative support for pro-integration parties Party support by general left right position Party support by economic left right position Party preference by social libertarian authoritarian position Average turnout at national elections in EU countries Proportion intending to vote by year and economic assessment Predicted probability of voting by past behaviour Predicted probability of voting by economic assessment and party identification Support for European integration by prospective economic assessment Support for European integration by left right position Evaluation of EU membership over time Positive evaluation of EU membership by prospective economic assessment Positive evaluation of EU membership by left right position Attribution of economic responsibility by prospective economic assessment Attribution of economic responsibility by left right position

14 List of tables 2.1 Sample size and interview mode of EES surveys Key variables used to measure the economic vote Prime ministers parties model Components of institutional and government clarity Alternative government clarity models Variation in party position over time Regression model predicting general left right position Left right and extreme tendency by year and voter group Directional and extreme tendency along economic dimension Directional and extreme tendency along social dimension xii

15 Abbreviations BNP CDU CHES CSU ECB EES EU GDP IMF MSZP PASOK ParlGov PDY SGP Syriza UK British National Party Christian Democratic Union (Germany) Chapel Hill Expert Survey Christian Social Union (Germany) European Central Bank European Election Studies European Union Gross domestic product International Monetary Fund Hungarian Socialist Party Panhellenic Socialist Movement (Greece) Parliaments and Governments Database Political Data Yearbook (European Journal of Political Science) Stability and Growth Pact Coalition of the Radical Left (Greece) United Kingdom xiii

16

17 Introduction The Great Recession of was a deep global recession that severely harmed the world economy. It has been described as the worst economic crisis since the Great Depression of the 1930s, both in general (Reinhart and Rogoff 2009, 208) and in Europe specifically (European Commission 2009, iii). In many European countries, the period following this recession has been characterised by political upheaval and many incumbent governments have lost power as a result (Kriesi 2014). This can seemingly be explained by the theory of economic voting, which predicts that voters support for incumbent governments is linked to good economic conditions (Key 1961; Fiorina 1981; van der Brug, van der Eijk and Franklin 2007; Duch and Stevenson 2008). This simple idea is so well established that it has been described as virtually a social science law (Duch 2007, 805). Nonetheless, there are still open questions about economic voting. As the theory was developed after the Great Depression, it is not yet known whether the economic voting effect operates in the same way during a severe global recession than it does at more normal times. The main question motivating this thesis is: was the economic vote during the Great Recession different from that at other times? Since many of the elections following the crisis coincided with deeply unpopular austerity programmes (Kriesi 2014), the thesis also examines whether this austerity played any role in influencing voters attitudes and intentions. The Great Recession began with the financial crisis in the United States sparked by the subprime mortgage lending practices of US banks (European Commission 2009, 1). The European Union was strongly affected, with the whole EU entering a fifteen-month recession from early Although this period ended in mid-2009, it was succeeded by a further recession in late 2011 and yet another in The Eurozone remained in recession throughout the entire period from late 2011 until early In several of these countries, government funds were used to bail out banking sectors at risk of collapse (62). Austerity programmes were 1 These figures are based on OECD seasonally adjusted quarterly GDP growth rate data, using the common definition of a recession as two or more consecutive quarters of negative growth. 1

18 2 INTRODUCTION widely implemented. In the following years, a number of governments suffered memorable defeats at the ballot box (Kriesi 2014). Decades of economic voting theory have established that voters punish governments electorally when economic conditions are poor but the Great Recession is of a much greater scale and severity than the typical national recessions that have informed much of this theory. The last comparable event was the Great Depression of the 1930s, and although there have been studies of that time (e.g. Lindvall 2013, 2014), they are fundamentally limited by the lack of any data beyond the electoral results and primitive economic indicators of the time. The purpose of this thesis is to study electoral behaviour in the European Union during the Great Recession and to determine whether voters responded to economic dissatisfaction the same way then as they have at other times. The Great Recession and its after-effects have played out differently in every country. It is worth taking a closer look at some of the countries that were most deeply affected in order to gain an understanding of the ways that governments and voters responded to the unfolding situation. One of the most striking examples of an electoral backlash took place in Ireland. Ireland was the first European country to enter recession, beginning in the second quarter of 2007 and, but for a short reprieve in late 2007, remaining in recession until the end of Unemployment more than doubled in the space of a few years, the rate rising from 6.4 percent in 2008 to 14.7 percent in In 2009, workers took to the streets of Dublin to protest the government s plan to levy the pensions of public sector employees to make up for declining government revenue (BBC News 2009). Irish banks were heavily damaged by the global financial crisis and later in 2009, the Irish government was forced to nationalise the Anglo-Irish Bank to prevent its collapse, after other banks had already been bailed out (Connor, Flavin and O Kelly 2012). The first opportunity that Irish voters had to respond to these events was the general election of 25 February This election proved catastrophic for Fianna Fáil, the leading party of the coalition government at the time and the party which had held the Irish premiership for all but eighteen of the 79 years between 1932 and At the 2011 election, Fianna Fáil lost more than half of its vote compared to the previous election and was reduced from 78 to a mere twenty seats in the Dáil Éireann (O Malley 2012). Although they have increased their support from that low at the 2016 election, they still received less than one quarter of the vote (Irish Times 2016), showing that they have still not recovered from most of the damage. 2 According to OECD quarterly GDP data. 3 According to OECD annual unemployment rate data.

19 3 One of the countries that has been most severely affected by the crisis is Greece. The Greek crisis has been characterised by high levels of sovereign debt and the inability of the Greek government to repay or service that debt. Greece suffered an exceptionally long period of recession, with negative or zero quarterly GDP growth rates in all but two quarters of the six years from mid-2007 to mid-2013, according to OECD figures. In light of increasing concern that Greece would be unable to repay its sovereign debt, the so-called Troika of the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) offered Greece a series of bailout loans (European Commission 2010, 2012). These loans were conditional on the implementation of a package of austerity measures, including privatisation and structural reforms. The measures were deeply unpopular with the Greek public, leading to mass protests. One survey found that 29 percent of the Greek population had participated in anti-austerity protests (Rüdig and Karyotis 2014, 488). The economic instability in Greece has been matched by political instability, with five general elections having taken place in the years The first election took place on 4 October 2009, during the recession but before the debt crisis took hold. The centre-left Panhellenic Socialist Movement (PASOK) was able to secure an absolute majority of votes and took government from the centre-right New Democracy party (Mavrogordatos and Marantzidis 2010). Two elections were held in 2012, after the bailout loans had been accepted and the austerity programme had begun to be implemented. The first election took place on 6 May but as no government could be formed, fresh elections were held on 17 June. The result of this election was that a grand coalition was formed in which New Democracy and PASOK shared power along with a third party, Democratic Left. This coalition was was explicitly pro-european and had the objective of keeping the anti-austerity Coalition of the Radical Left (Syriza) out of power (Mylonas 2013). This effort was ultimately futile, as Syriza gained enough seats in the election of 25 January 2015 to form a new government with the support of the right-wing populist Independent Greeks. This new coalition was re-elected in the September elections of the same year (Aslanidis and Kaltwasser 2016). In effect, Greek voters have rejected not just the party in power at the time the crisis began but the entire political mainstream. Not all countries that were deeply affected by the Great Recession experienced such turmoil. The United Kingdom was also hit very hard by the crisis but the political effects were less severe than in Ireland and Greece. The UK was in recession for eighteen months between early 2008 and late The unemployment rate rose from 5.3 percent in 2007 to 8.0 percent in 4 According to OECD quarterly GDP data.

20 4 INTRODUCTION 2011, before slowly falling again to its pre-crisis level by 2015; youth unemployment peaked at 21.3 percent in Two general elections have been held in the UK since the beginning of the crisis. The first took place on 6 May In this election, the incumbent Labour Party lost a considerable portion of its support, with its vote share reduced to 29.0 percent, a 6.2 point decline since the preceding election (Whitaker 2011). Despite the use of a majoritarian electoral system, no party received a majority of seats but the Conservatives were able to form a centre-right coalition with the centrist Liberal Democrats. At the second election, which took place on 7 May 2015, the Conservatives were able to form a government in their own right and the Labour Party recovered some of its vote, with a 1.5 point increase in support (BBC News 2015). Thus although there was a change of government, this was nothing like the severe collapse in support faced by the incumbent party in Ireland or the reconfiguration of the party system in Greece. In all of these cases it may seem obvious that the incumbent governments suffered defeats because they were in power at a time when economic conditions worsened considerably. This would be the classic economic voting response, in which voters sanction governments for failing to prevent an economic crisis. This is a reasonable interpretation but there are other interpretations that ought to be considered as well. In the case of the United Kingdom, the Labour Party had already been in power for thirteen years by the time of the 2010 election, an unusually long tenure for a Labour government as no Labour government had previously served more than six years and a few months. Furthermore, this was the first election faced by Gordon Brown, who had succeeded Tony Blair as prime minister and who was less charismatic than his predecessor. In other words, had there been no recession, Labour may well have lost the election anyway. The sheer magnitude of Fianna Fáil s defeat makes it difficult to deny that the Irish result was related to the crisis. Similarly, the fact that the grand coalition of Greek mainstream parties has failed to hold on to office is strongly suggestive of a crisis response in Greece. Even so, an economic vote would normally be expected to benefit the main opposition party, which in this case was also clearly rejected. Furthermore, voters may well have been reacting to the unpopular austerity measures as much as or more than the recession itself. This thesis aims to shed new light on economic voting theory by testing these alternative explanations. Although there is an enormous economic voting literature showing that voters do tend to vote against incumbent parties when economic conditions are poor, 6 these results have not been thoroughly tested in the context of a global economic crisis. This means that 5 According to OECD annual unemployment rate and youth unemployment rate data. 6 This literature is discussed in Chapter 1.

21 5 it is not yet known whether the economic voting response is stronger in such a context or whether there are spillover effects, such as a loss of support for mainstream non-government parties. It has previously been hypothesised that the economic vote may operate differently in different economic contexts (Stevenson 2002, 45) and the Great Recession offers an ideal opportunity to test this hypothesis. Furthermore, economic voting theory has little to say about the electoral response to the austerity measures that played such a large role in the political response to both the Great Depression and the Great Recession. These are the key questions motivating to this thesis. To what degree, if any, does the electoral response to the Great Recession differ from the ordinary economic voting response and how much of this can be attributed to austerity measures rather than the economic conditions themselves? In order to examine these questions, this thesis uses data from several sources. The most important of these is the European Election Studies (EES) voter surveys. These are surveys of approximately one thousand respondents in each European Union member state. A wave of the EES surveys has been collected shortly after each set of elections to the European Parliament since Three of these waves are used in this thesis. The first, the 2004 wave, took place a few years before the beginning of the Great Recession. The 2009 wave was collected at a time when most of the countries had entered recession. The final wave, collected in 2014, took place in the aftermath of the crisis, when many countries were still in recession and once the effects of the austerity programmes had been widely felt. In other words, these three time points represent the before, during and after periods of the Great Recession. The EES data includes a number of questions that make it suitable for measuring the level of economic voting propensity. The EES survey data is also supplemented with aggregate data, most notably from the Parliaments and Governments Database (ParlGov). Multi-level modelling is used to estimate economic voting effects across the 25 countries that had joined the EU in 2004 or earlier. This thesis consists of eight chapters. Chapter 1 reviews the economic voting literature and explains the theoretical model informing this study. This chapter argues for a sociotropic model of economic voting and for an individual-level study using party support rather than vote choice as the dependent variable. It argues that both the prospective and retrospective theories of economic voting have merit but that a prospective approach is appropriate for this thesis because asking people in 2009 how they felt the economy had changed over he past twelve months is not very informative, since there is broad agreement in most of the studied countries that the economy had become worse in that period. This chapter also outlines the

22 6 INTRODUCTION two-stage model of vote choice according to which voters form an assessment about the economic conditions in their country, which in turn influences their level of support for each of the parties in their country, this preference finally determining their vote choice. This theoretical model informs the empirical model developed in later chapters to measure the economic vote. Chapter 2 explains in depth the data and methods used throughout the rest of the thesis. The chapter discusses how the economic vote is measured using multilevel analysis to predict an individual s level of support for the parties in his or her country. The term economic vote is used throughout this thesis to mean the degree to which an individual s current support for government parties relative to opposition parties is affected by his or her economic perceptions. This means that there need not be an actual election in order to speak of the economic vote in a given year. The chapter also discusses the choice of datasets in more depth as well as the details of how the key variables have been measured. The remaining chapters discuss the results of the analysis. Chapter 3 compares the economic vote in 2004, 2009 and In this chapter, a multilevel model is developed to measure the effect of a change in prospective economic assessment on a voter s levels of support for each of the parties in their country. This model is used to show that support for incumbent parties is positively associated and support for opposition parties negatively associated with an individual s prospective economic assessment, as economic voting theory predicts. It goes on to show that this effect was stronger in 2004, before the Great Recession, than it was in 2009, when the recession was at its peak. It further shows that the economic voting effect was stronger in 2014 in the aftermath of the recession than in 2009, although not as strong as in These results are contrary to expectations and some of the implications are discussed. Potential explanations for this result are explored throughout the remainder of the thesis. Chapter 4 is concerned with explaining why some countries experienced a stronger economic voting effect than others. There is a body of evidence that certain political institutions afford greater clarity of responsibility than others, making it easier for voters to apportion blame and so strengthening the economic voting effect in those countries. For example, in the United Kingdom, the majoritarian electoral system, the weak upper house and the procedural norms together have the effect that prime ministers are almost always in a position to implement their preferred legislation without having to negotiate with a number of other actors. In Germany, by contrast, federal chancellors usually have to contend with coalition partners, a powerful upper house and a parliamentary committee system not necessarily controlled by their party. As a result, it is not surprising that British voters are more willing than German

23 7 voters to hold their governments to account for poor economic conditions. This chapter investigates whether clarity of responsibility can also explain the variation between countries in their response to the Great Recession. The only clarity effect that is found is that the economic vote is stronger in countries where the government is more ideologically cohesive. Even this clarity effect was depressed during the recession. Chapter 5 examines which parties benefited from the Great Recession. Earlier chapters have established the presence of economic voting during that time, meaning that incumbent parties suffered a loss of support when voters believed the economy would worsen. This raises the question of which parties those voters turned to and it is this question that this chapter addresses. It is variously claimed that extreme parties, left-wing parties and Eurosceptic parties ought to be the beneficiaries of any post-crisis change in party support. This chapter puts these claims to the test by classifying each of the parties in the study and examining whether parties in any particular group are more likely than other parties to gain support from voters pessimistic about the economy. It is found that the biggest beneficiaries of the recession were Eurosceptic parties and parties further from the centre than the mainstream. As well as the economic voting behaviours discussed up to this point, there is also the possibility that voters have chosen to respond to the dire economic situation by withdrawing from voting altogether. Chapter 6 investigates the possibility of an economic abstention effect. There is an existing body of evidence suggesting that poor economic conditions do depress turnout but, as with economic voting, there have been very few studies of this effect in the context of a severe transnational crisis. This chapter tests the hypotheses that there was an economic abstention effect in all three years of the study and that the size of this effect was greater during the crisis than it was at other times. Although the economic abstention effect was found to exist, it was also found that this effect was weaker during the crisis before becoming stronger than even previously in the years following. The preceding chapters found that the strongest changes in attitudes and intentions mostly took place too late to be attributed to the crisis alone, suggesting that the austerity introduced in response to the crisis may also have played an important role. Chapter 7 tests this hypothesis by examining attitudes towards the EU and European integration as well as how responsible voters believe the EU is for the economy. Given the highly visible role of European institutions in negotiating austerity programmes with several countries as a condition of bailout loans, it is expected that any anti-austerity sentiment would influence this attitude. It is shown that

24 8 INTRODUCTION support for European institutions and further integration fell in the years following the crisis and voters became increasingly likely to believe that the EU is responsible for the economy. Finally, Chapter 8 draws these various threads together to offer a coherent explanation of European electoral behaviour before, during and after the Great Recession. Several possible explanations for these results are discussed and the merits of each examined. It is argued that the best explanation for these results is that the electoral response to the austerity measures imposed in many countries was stronger than the response to the recession itself. It seems that voters were able to be relatively forgiving of a crisis that spread to Europe from overseas but they were less forgiving of their governments management of the crisis and unwilling to accept the austerity programmes that many of those governments implemented. This has implications for economic voting theories, which usually assume that specific policy measures are of little import to voters as it is only the outcomes that interest them.

25 Chapter 1 Theory of economic voting: how economic conditions shape the vote Few theories in political science have been as successful as the theory of economic voting. Economic voting effects have been observed time and time again, at numerous times and in numerous countries. As Raymond Duch puts it, it has now become virtually a social science law that the economy is one of the most important influences on how individuals vote (Duch 2007, 805). Despite, or perhaps because of, this success, there are numerous variant theories of economic voting. Some argue that economic voters are trying to select the best possible party to govern them; others that they are simply trying to reward or punish the incumbent government for its performance. Some theories posit that voters look to the future condition of the economy; others that they simply react to its past performance. It has been theorised that economic voters are only concerned with their own situation but it has also been theorised that they also take into account the conditions of others. Moreover, economic voting suffers from an instability problem (Lewis-Beck and Paldam 2000). What this means is that measurements of the strength of the economic vote have a tendency to be very sensitive to both the country and the time of the measurement, although there is no obvious reason why this should be the case. Attempts to solve this problem have led to even more formulations of economic voting theory, such as the idea that certain institutional arrangements are more conducive to economic voting than others. This chapter reviews these competing theories in the light of the existing empirical evidence in order to construct the specific economic voting theory that informs this thesis. This chapter begins with an overview of economic voting, explaining what it is and briefly discussing the history of the theory. The next sections examine some of the key disputes in the literature. The first of these is whether the economic vote should be modelled using objective economic indicators or voters perceptions of the current economic conditions. The second 9

26 10 CHAPTER 1. THEORY OF ECONOMIC VOTING Figure 1.1: Basic principle of economic voting The central idea of economic voting theory is that a strong economy benefits the incumbent electorally and a weak economy benefits the opposition. This implies that a person s vote choice is affected differently by the prevailing economic conditions depending on which parties are currently in power. is whether economic voters are egocentric, that is to say entirely concerned with their own situation, or sociotropic, which means at least partially concerned with the well-being of others. The next debate is whether economic voting is prospective or retrospective in orientation, in other words, whether voters are more concerned with the likely future trajectory of the economy or with its history. Following that, there is a discussion of the process of vote choice formation, where it is argued that economic voting should be studied in terms of party support rather than final vote choice. Then there is a discussion of the two basic logics of economic voting that have been proposed. These are the sanctioning models and the selection models, which offer different explanations as to what individual economic voters intend to achieve through their actions. Following this, there is a review of the literature about economic voting during the Great Recession. It will be shown that there is a need for a cross-national individual-level study that explicitly compares economic voting during the Great Recession to that at other times. Finally, it will be shown how these threads fit together to form the cohesive theory that underpins this work. 1.1 What is economic voting? The fundamental claim of economic voting theory is that voters are more likely to support the incumbent government when the economy is performing well and more likely to support opposition parties when the economy is performing badly. This idea is illustrated in Figure 1.1, which is intended to be general enough to describe any variant of the theory suitable for a multiparty system. As the diagram shows, a person s vote choice is influenced by the current

27 1.1. WHAT IS ECONOMIC VOTING? 11 economic conditions and, crucially, the precise nature of this influence depends on which party or parties are currently incumbent. Without this interaction, a strong economy would always benefit the same party but the theory predicts that a strong economy benefits whichever party happens to be in power. The term economic vote refers to this interaction throughout this thesis. In a strictly two-party context, such as the United States, this model can be, and frequently is, simplified further so that the interaction can be eliminated entirely and the model simply becomes support for the government relative to support for the opposition depends on the prevailing economic conditions. It will be shown later in this chapter that this is not an appropriate model for the multiparty systems analysed in this thesis. Before proceeding to discuss specific aspects of this theory, it is worth briefly discussing the historical development of the idea of economic voting. Economic voting has a long history of being studied. Some of the earliest studies were published during the Great Depression, although the term economic voting was not used until much later. Tibbitts (1931), building upon an even earlier study (Rice 1928, cited in Tibbitts 1931), found evidence that changes in incumbent vote share at US congressional elections can be partly explained by fluctuations in economic conditions. This study is unusual for such an early paper in that the ideas it presents are very similar to economic voting as it understood today. Another early study of economic voting was conducted by Pearson and Myers (1948), who found that price indices compared favourably to opinion polls as a predictor of US presidential elections, with high inflation aiding the challenger and low inflation the incumbent. On the other hand, Wilkinson and Hart (1950) found almost no correlation between incumbent vote share at presidential elections and an index of economic activity. There was little agreement at this stage not only about results but also about which parties should benefit from good economic conditions. Many studies of the relationship between electoral behaviour and economic conditions were looking for party-specific effects rather than the incumbent effects that characterise economic voting and which have come to be expected today. For example, during Franklin D. Roosevelt s presidency and motivated by his depression-era social and economic reforms, there were studies seeking to determine which groups had the greatest support for Roosevelt, finding that poorer counties (Ogburn and Coombs 1940) and counties that had been most severely affected by the depression (Gosnell and Colman 1940) were most likely to support the president. Other studies anticipated that voters would turn to the left when economic conditions are poor and to the right when conditions are good, finding some support for this hypothesis in US election results at US pres-

28 12 CHAPTER 1. THEORY OF ECONOMIC VOTING idential (Kerr 1944) and congressional (Rees et al. 1962) elections. There is little discussion from this period of economic voting outside the United States and that is not well-developed. The idea that the fate of the contemporary Conservative government in the United Kingdom might depend on economic conditions is explored by Durant (1965), the then-director of the UK Gallup Poll, who quotes newspapers as the source of this idea, but it is not clear whether this is expected because of that party s political orientation or because of its incumbency. Even though these ideas have largely been supplanted by the incumbent-focused theory of economic voting, studies of this kind still appear occasionally. Carlsen (2000), for example, analysed the effect of unemployment and inflation rates on quarterly opinion polls in the US, the UK, Canada and Australia, arguing that left- and right-wing parties are affected differently by different kinds of economic adversity. This debate was reignited when Kramer (1971) published a study introducing multivariate statistical analysis to this question. This marked a shift away from the basic cross-tabulation and correlation analyses of earlier studies but Kramer s work continued in the tradition of analysing aggregate data sources, namely incumbent vote share and various economic measures such as unemployment, income and price indices. He found a positive relationship between real income and incumbent vote share in elections to the US House of Representatives. Shortly afterwards, Stigler (1973) published a refutation, using similar methods to argue that this relationship actually does not exist and theorising that it ought not exist in any case, as in his view the two major parties in the United States are equally driven to manage unemployment and inflation. Arcelus and Meltzer (1975) also found only weak evidence of any link between aggregate economic conditions and the vote shares of the major US parties. Tufte (1975) on the other hand found results consistent with Kramer s, in that US midterm election results were influenced by economic conditions. In an effort to explain these inconsistent findings, Bloom and Price (1975) hypothesised that economic conditions affect voter behaviour much more during times of deprivation than during times of prosperity. Their findings seemed to confirm this hypothesis and they argued that voters were inclined to punish governments for poor conditions at US House elections but not to reward them for better conditions. Even this did not settle the debate, and further research found no important relationship between US presidential vote share and economic conditions (Fair 1978). Economic voting soon became a major focus of study within the discipline. Not only did the literature expand considerably but various competing theories of economic voting arose. Kinder and Kiewiet (1981) proposed the sociotropic voting theory, which rejects the older

29 1.2. PERCEPTIONS OR INDICATORS 13 egocentric voting theory and argues that voters are concerned, to at least some degree, with the conditions of others, not just themselves. Fiorina (1981) brought new attention to Downs (1957) idea that economic voting could be explained by a rational model of selection, which offered an alternative to the then-dominant idea that economic voting was an act of punishment or reward (Key 1961, 1964, 1966). Since the theory developed in so many different directions, rather than continuing chronologically, this chapter will proceed thematically. Each of the key debates is discussed in turn, along with any empirical evidence that sheds light on the competing approaches and a discussion of how these developments are relevant for this thesis. 1.2 Perceptions or indicators: the link between the economy and the vote Economic voting theory naturally raises questions about the nature of the link between the prevailing economic conditions and the individual s vote choice. For example, what sorts of economic privations are voters sensitive too? Are these all equal? Do voters see these as separate issues or facets of a cohesive economy issue? The answers to these questions typically fall into one of two categories. The first category posits that voters respond to material changes in well-being, which can be measured by standard economic indicators, such as inflation or unemployment rates. The second category proposes that voters form an overall impression of the condition of the economy and it is this impression that influences their vote choice. For example, even if all of the economic indicators for a given year are positive, a particular voter might be under the impression that the economy has worsened over the past year, leading that voter to turn against the government. This might be the case if that voter s personal experience of the economy was bad or if the sources of information relied upon by that voter gave a distorted impression of the true situation. There are further related questions, such as whether voters are exclusively concerned with their personal situation or whether they are concerned with the economy more broadly and also whether voters are primarily influenced by their assessment of past economic performance or their expectations of future economic performance. These related questions are discussed in the following sections. This section examines the relative merits of the economic indicators and individual perceptions theories of economic voting and explains why the perceptions approach is preferred in this thesis. The different approaches offer contrasting benefits. While it is naturally true that voters can only respond to their own perceptions of the economic situation, if these perceptions are

30 14 CHAPTER 1. THEORY OF ECONOMIC VOTING highly accurate, then an unnecessary link can be eliminated from the theoretical model of economic voting behaviour. Indicator-based theories also lend themselves well to macro-level empirical studies, where individual evaluations are not available in any case. Furthermore, since most countries collect data pertaining to multiple different aspects of the economy, an indicator-based theory can make empirically testable claims about how voters react to different kinds of economic privation. For example, it is sometimes argued that voters are more sensitive to unemployment when the incumbent government is left-leaning and inflation when rightleaning (Powell and Whitten 1993, ; Whitten and Palmer 1999; van der Brug, van der Eijk and Franklin 2007, 59). Empirical efforts to pin down these sorts of differences have not, however, been overwhelmingly successful. For example, Chappell and Veiga (2000) examined 136 elections in thirteen European countries between 1960 and 1997 and were able to find significant economic voting effects for inflation but not for other kinds of economic problems. Another study examined quarterly opinion polls from Australia, Canada, the United Kingdom and the United States, finding that voters were more tolerant of inflation than unemployment when right-wing governments were in power, but there were no conclusive results for leftwing governments (Carlsen 2000). A recent study of OECD elections between 1975 and 2013 has also found a difference between patterns of economic voting for left-wing and right-wing governments but in this case it was found that voters were more tolerant of inflation when leftwing governments were in power (Bouvet and King 2016, 76). These findings are obviously contradictory and it may well be that there is no systematic pattern of differences in economic voting according to the ideology of the governing parties. On the other hand, if voters perceptions of the economy are substantially distorted, then omitting the perception formation process from the theory will cause problems, which may explain the inconsistent findings discussed above. Furthermore, given the notorious instability problem of economic voting studies, it is worth reconsidering some traditional strong assumptions, as they may provide some helpful clues. If it is in fact the case that voters perceptions are distorted, then both the link between objective conditions and voters perceptions of those conditions and the link between perceptions and vote choice ought to be studied carefully in order to understand economic voting. Much therefore hinges on whether voters accurately perceive economic conditions. This was studied by Paldam and Nannestad (2000), who found that Danish respondents mostly knew little about the state of the economy, in terms of indicators like unemployment, inflation and foreign date rates (Paldam and Nannestad 2000). This is problematic for an indicator-based theory, since if voters do not know how those indicators

31 1.2. PERCEPTIONS OR INDICATORS 15 are moving, then it is difficult to see how they could condition their votes. In response to these findings, Sanders (2000) looked at voters assessments of the overall condition of the economy in the United Kingdom between 1974 and He found that, although voters typically have little awareness of specific economic facts, their assessments of the general state of the economy tend to be remarkably accurate. Taken together, these findings suggest that a perception-based theory of economic voting is more promising than an indicator-based theory. On the other hand, it has also been found, in an aggregate study of German electoral behaviour, that hidden unemployment as well as official unemployment harms support for the governing parties (Feld and Kirchgässner 2000). It is thus possible that the evident lack of knowledge of official statistics does not represent mass ignorance of the true state of the economy. Nonetheless, even if it is true that voter perceptions are in some respects a better reflection of the economic reality than the official statistics, this just strengthens the argument that published economic indicators are a flawed tool for understanding the economic vote. It has also been argued that, even though the average voter may have no incentive to learn about the condition of the economy, there is a subset of informed voters that does have such an incentive and this subset could be sufficient to explain the economic voting effect (Aidt 2000). Only a theory that includes perceptions can properly account for this possibility. One difficulty with a perception-based theory is that it has been theorised that voters have a tendency to filter the information that they pay attention to based on their prior beliefs about the incumbent government. Government supporters are more likely to be receptive to news that supports the belief that the economy is being managed well than to news challenging that belief, while the opposite is true for opposition supporters. If this is the case then this produces a potential endogeneity problem since, according to this model, a citizen s vote choice both influences and is influenced by his or her perceptions of the economy. This point has produced considerable concern in the literature (e.g. Wlezien, Franklin and Twiggs 1997; Evans and Andersen 2006; Evans and Pickup 2010) and has been particularly forcefully expressed by van der Brug, van der Eijk and Franklin (2007, 26). The empirical evidence, however, suggests that this is much less of a problem in practice than it might appear. As part of their detailed study of the economic vote, Duch and Stevenson (2008, ) compared their key models to variants specifically designed to account for any endogeneity effects in voters economic perceptions and found no evidence of systematic bias in the results of the naive models. Other attempts to exogenise economic perceptions have similarly confirmed the existence of the