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

Abstract

AbstractPublic 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.