IMF study reveals global political propensity towards ‘freebies’

State governments of Karnataka, Himachal Pradesh, Madhya Pradesh and Maharashtra among others have widely been panned for their fiscal profligacy. The states, ruled by both the NDA and the Congress, have nearly emptied their coffers with doles promised during elections. Some states are so deeply in the red that they have not been able to pay salaries or pension.

Economists of all hues have predicted the worst for these states, building elaborate doomsday models.

Now, an International Monetary Fund (IMF) analysis has shown that political parties the world over are doing something similar. The report says the parties are pulling away from fiscal prudence, unmindful of large fiscal deficits and elevated debt levels. And, this is not just a modern-day development. The analysis stitches together studies from 65 advanced and emerging market countries going back over 60 years.

The paper uncovers a growing pro-spending pattern by looking at the fiscal content of over 4,500 political platforms from 720 national elections held between 1960 and 2022 in advanced and emerging countries.

According to the report, while conservatives traditionally lean towards fiscal prudence and the idea of a small state, with liberal usually associated with more spending and a larger presence of the state in the economy, the fact is that “parties across the political spectrum sound increasingly similar when it comes to fiscal policy: they all campaign on ideas of a bigger government and promising more spending.”

The IMF analysis show that support for more spending has steadily increased, both among socialists and nationalists, “while fiscal restraint rhetoric has lost favour across the board in the last three decades, after being most popular in the1980s.”

Among one of the surprising finds of the survey is how short-term the impact of an economic downturn is on policy-making. “Fiscal discourse turns more conservative under more adverse economic conditions, including in the aftermath of public debt surges, and after the adoption of fiscal rules, but only to a limited extent,” says the report, adding that major fiscal events only partially serve as shifters of political discourse. For instance, elections held within three years of a “debt surge” focuses more on economic restraint without actual cuts in public spending on welfare and social services.

The IMF study confirms what us Indians knew all along – politicians want people’s votes. And, these votes are linked to the wants of respondents who prefer an increase in spending or maintaining it at current levels in their countries. The study states, “People want more infrastructure, schools, hospitals, and services (education, health, safety), preferably at low or no additional cost.”

The study however, has no answer to the question of how to pay for this increased spending. It concedes that, “Large fiscal deficits and elevated debt levels around the world call for greater fiscal prudence, but this might be hard when political forces pull in the opposite direction”, adding that scholars, policymakers, and voters alike will need to rally around viable political strategies to keep fiscal sustainability at the center of the public debate, as uncertainty about the future of public finances mounts.