04 2017 Winter Vol. 15 REFORM MODEL FORUM How Bracket Creep Creates Hidden Tax Increases: Determinants Evidence from Germany Florian Dorn, Clemens Fuest, Björn Kauder, Luisa Lorenz, of Populist Voting Martin Mosler and Niklas Potrafke Sascha O. Becker, Thiemo Fetzer, Dennis Novy, Manuel Funke, Christoph Trebesch, Lewis Davis, Sumit S. Deole, Carl C. Berning, RESEARCH REPORT Alkis Henri Otto, Max Friedrich Steinhardt, Andreas Steinmayr, Anthony Edo, Jonathan Öztunc, Panu Poutvaara Does Populism Influence Economic Policy Making? Insights from Economic Experts Around the World Dorine Boumans DATABASE How Evidence-based is Regulatory Policy? A Comparison Across OECD Governments Development Aid – Between Illusion and Reality Debt Crisis in the EU Member States and Fiscal Rules NEWS New at DICE Database, Conferences, Books ifo DICE Report ISSN 2511-7815 (print version) ISSN 2511-7823 (electronic version) A quarterly journal for institutional comparisons Publisher and distributor: ifo Institute Poschingerstr. 5, 81679 Munich, Germany Telephone +49 89 9224-0, Telefax +49 89 9224-1462, email [email protected] Annual subscription rate: €50.00 Editors: Marcus Drometer, Yvonne Giesing, Christa Hainz, Till Nikolka Editor of this issue: Marcus Drometer ([email protected]) Copy editing: Lisa Giani Contini, Carla Rhode Reproduction permitted only if source is stated and copy is sent to the ifo Institute. DICE Database: www.cesifo-group.org/DICE VOLUME 15, NUMBER 4, WINTER 2017 FORUM Determinants of Populist Voting Who Voted for Brexit? Sascha O. Becker, Thiemo Fetzer and Dennis Novy 3 Financial Crises and the Populist Right Manuel Funke and Christoph Trebesch 6 Immigration and the Rise of Far-right Parties in Europe Lewis Davis and Sumit S. Deole 10 Alternative für Deutschland (AfD) – Germany’s New Radical Right-wing Populist Party Carl C. Berning 16 The Relationship between Immigration and the Success of Far-right Political Parties in Germany Alkis Henri Otto and Max Friedrich Steinhardt 20 Did the Refugee Crisis Contribute to the Recent Rise of Far-right Parties in Europe? Andreas Steinmayr 24 Immigration and Extreme Voting: Evidence from France Anthony Edo, Jonathan Öztunc and Panu Poutvaara 28 REFORM MODEL How Bracket Creep Creates Hidden Tax Increases: Evidence from Germany Florian Dorn, Clemens Fuest, Björn Kauder, Luisa Lorenz, Martin Mosler and Niklas Potrafke 34 RESEARCH REPORT Does Populism Influence Economic Policy Making? Insights from Economic Experts Around the World Dorine Boumans 40 DATABASE How Evidence-based is Regulatory Policy? A Comparison Across OECD Governments Till Nikolka and Alexander Kirschenbauer 45 Development Aid – Between Illusion and Reality Maximilian Brucker and Madhinee Valeyatheepillay 49 Debt Crisis in the EU Member States and Fiscal Rules Kristina Budimir 53 NEWS New at DICE Database, Conferences, Books 58 FORUM Determinants of Populist Voting Sascha O. Becker, Thiemo Fetzer and Surprisingly, and contrary to much of the politi- Dennis Novy cal debate in the run-up to the election, we find that 1 relatively little variation (under 50%) in the Vote Leave Who Voted for Brexit? share can be explained by measures of a local author- ity area’s exposure to the European Union. These meas- ures include a local authority’s trade exposure to the EU (albeit measured at a coarser spatial resolution), its receipts of EU structural funds, and importantly, INTRODUCTION the extent of immigration. We find evidence that the Sascha O. Becker growth rate of immigrants from the 12 EU accession University of Warwick. The UK referendum on European Union membership countries that joined the EU in 2004 and 2007 is linked on 23 June 2016 was a key moment for European (dis) to the Vote Leave share. This link mirrors findings in integration. Although the outcome had been expected Becker and Fetzer (2016) who study the role of immi- to be tight, in the days running up to the referendum gration from Eastern Europe explaining the growth of bookmakers and pollsters predicted a win for the UKIP. It stands in contrast to migrant growth from the Remain side. Many observers were left puzzled and EU 15 countries or elsewhere in the world. It suggests keen to understand who voted for Leave. Various news- that migration from predominantly Eastern European papers and blogs were quick to link the referendum countries has had an effect on voters, albeit quantita- vote to key characteristics like the age profile of the tively small. However, we cannot identify the precise Thiemo Fetzer population (Burn-Murdoch 2016). It was also pointed mechanism – whether the effect on voters is mainly University of Warwick. out that the Brexit vote relates to class identification and social attitudes more generally (Kaufmann 2016a). In our paper (Becker et al. 2016) we follow these early Figure 1 contributions and analyse the Brexit referendum vote in greater detail. We study the EU referendum result in Ma h eav har i cros oca uthorit rea i h 01 eferendum England, Wales and Scotland in a disaggregated way across 380 local authorities (and across 107 wards in Pct eave four English cities). We relate the vote to the funda- 2140 000 000 4000 mental socio-economic features of these areas. Figure Dennis Novy 4000 5000 University of Warwick. 1 plots the Vote Leave shares across the local authority 5000 000 areas (excluding Northern Ireland and Gibraltar). 000 7000 7000 750 We capture different subsets of socio-economic variables that best ‘predict’ the actual referendum result. We cannot possibly give a causal explanation of the referendum result, because the election outcome is obviously multi-causal and multi-faceted. In other words, our results reflect a broad range of correlation patterns. Figure 2 reports the goodness of fit in regressions that use different sets of explanatory variables. This helps to shed light on the relative explanatory power of different salient “issues”. For example, we find that demography and education (i.e., the age and qualifi- cation profile of the population across voting areas) explain just under 80% of the Vote Leave share. The economic structure explains just under 70%. Variables in this group include the employment share of manu- facturing, unemployment, and wages. 1 https://doi.org/10.1093/epolic/eix012 Parts of this chapter were previously published at VoxEU.org http://voxeu. org/article/fundamental-factors-behind-brexit-vote. ource ecer eter o 2017 © ifo Institute ifo DICE Report 4 / 2017 December Volume 15 3 FORUM economic due to competition in the labour and housing DID TURNOUT BY AGE MATTER? markets, or reflects changing social conditions instead. According to detailed polling conducted after the ref- FISCAL CONSOLIDATION erendum, turnout for the bracket of youngest voters aged 18-24 was 64%. This compares to turnout for the In the wake of the global financial crisis, the UK coalition same age group of less than 50% on average in UK gen- government brought in wide-ranging austerity meas- eral elections since 2000; and to an average turnout in ures to reduce government spending and the fiscal defi- the referendum across all age groups of 72.2%. At the cit. At the level of local authorities, spending per person other end of the age spectrum, voters aged 65 and fell by an average 23.4% in real terms from 2009/10 until above had a turnout of 90%. Support for Leave steadily 2014/15. But the extent of total fiscal cuts varied dra- increased with age, rising from just 27% for 18-24 year- matically across local authorities, ranging from 46.3% olds to 60% for voters aged 65 and above. to 6.2% (see Innes and Tetlow 2015). It is important Could the referendum have ended up in a victory to note, however, that fiscal cuts were mainly imple- for Remain if more young people had turned out? We mented as de-facto proportionate reductions in grants calculate that turnout amongst younger people or peo- across all local authorities. This setup implies that reli- ple more generally who were supportive of Remain ance on central government grants is a proxy variable would have had to be close to 100%. Clearly, this would for deprivation, with the poorest local authorities being not have been feasible. We therefore conclude that dif- more likely to be hit by the cuts. This makes it impossi- ferent turnout patterns would not have overturned the ble in the cross-section (and challenging in a panel) to referendum outcome. Nevertheless, it is important to distinguish between the effects of poor fundamentals bear in mind the potential for strong inter-generational and the effects of fiscal cuts. Bearing this caveat on the conflict entailed by Brexit. interpretation in mind, our results suggest that local authorities experiencing more fiscal cuts were more FIRST-PAST-THE-POST IN THE UK ELECTORAL likely to vote in favour of leaving the EU. Given the nexus SYSTEM AND THE LACK OF DEMOCRATIC between fiscal cuts and local deprivation, we think that REPRESENTATION this pattern largely reflects pre-existing deprivation. Our results are consistent with the notion that the vot- WHICH FACTORS ACCOUNT MOST FOR THE ing outcome of the referendum was largely driven by VARIATION IN THE VOTE LEAVE SHARE? longstanding fundamental determinants, most impor- tantly those that make it harder to deal with the chal- Demography, education, and economic structure, i.e., lenges of economic and social change. These funda- fundamental, slow-moving factors explain more of the mentals included a population that is older, less variation in the Vote Leave share compared to meas- educated, and confronted with below-average public ures of EU exposure, fiscal consolidation, and public services. We therefore doubt that a different style of services. We therefore find a rather striking disconnect short-run campaigning would have made a meaningful between the factors driving the Brexit vote shares difference to vote shares.