Public spending reforms, austerity and trust in government: a synthetic control analysis of the EU-28

Public spending reforms, especially when they influence the welfare state, aim to support macroeconomic stability and maintain good living standards. It is also politically important that citizens trust the institutions responsible for fiscal reforms. I analyse how trust in national government and the EU was affected by expenditure-based austerity interventions during the financial crisis and sovereign debt crisis. With a comparative case study approach covering the EU-28 member states, my findings from synthetic control models suggest that trust in the national government is considerably more sensitive to fiscal consolidation measures than trust in the EU. I also suggest that decisive reductions in the debt-to-GDP ratio are an important precondition for public trust in austerity. Furthermore, I do not find any effects of austerity on GDP growth. These results suggest that upcoming fiscal consolidation strategies in the post-Covid age should give high priority to macroeconomic stability while ensuring a favourable medium-term trajectory of household living standards