Rethinking Austerity’s Political Costs: The Role of Export Versus Domestic Demand Dependence at the Regional Level

Public spending cuts and tax hikes, known as fiscal austerity, remain a defining feature of Europe’s political and economic landscape. While research is divided on the electoral consequences of austerity at the national level, this paper takes a different angle by hypothesising that austerity’s electoral costs depend on regional economic structures. Austerity, though often prescribed as a universal remedy for public finances, dampens domestic consumption and simultaneously boosts the competitiveness of exports. Due to this tension, we argue that its political fallout hinges on the balance between internal and external demand: the more a region depends on external demand, the less likely voters are to punish incumbents for austerity. First, we present an original measure of the dependence of regional employment on exports. We then analyse how this variable moderates the political costs of austerity. We consistently find that while austerity generally erodes incumbent support, its political costs diminish, and at times nearly vanish, in regions highly reliant on external demand. These results underscore that the political consequences of austerity are conditional on the structure of the economy into which it is introduced rather than universal, revealing the limitations of “one-size-fits-all” fiscal prescriptions. The project advances our understanding of the conditions that shape citizens’ reactions to austerity and contributes to the growth model literature, extending its analytical focus to include how aggregate demand components shape voters’ behaviour.