Is it possible to implement austerity without paying a social and political price? According to Maria Carreri (Department of Social and Political Sciences, Dondena Research Center, Bocconi University, and CEPR) and Luis R. Martínez (Emory University), the answer is yes, provided you know where to act and take voters’ preferences into account.

In their study published in the Journal of the European Economic Association, Carreri and Martínez focus on a natural experiment that took place in Colombia in the early 2000s: the introduction of a fiscal rule that imposed a cap on administrative spending by municipalities. The result is perhaps unexpected but clear: less waste, stronger accounts, no deterioration in public services and, indeed, an improvement in the electoral prospects for the ruling parties.

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