“Did Austerity Cause Brexit?”

Carsten Allefeld writes:

Do you have an opinion on the soundness of this study by Thiemo Fetzer, Did Austerity Cause Brexit?. The author claims to show that support for Brexit in the referendum is correlated with the individual-level impact of austerity measures, and therefore possibly caused by them.

Here’s the abstract of Fetzer’s paper:

Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. Further, auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.

I came into this with skepticism about the use of aggregate trends to learn about individual-level attitude change. But I found Fetzer’s arguments to be pretty convincing.

That said, there are always alternative explanations for this sort of observational correlation.

What happened is that the places that were hardest-hit by austerity were the places where there was the biggest gain for the far-right party.

One alternative explanation is that these gains would still have come even in the absence of austerity, and it’s just that these parts of the country, which were trending to the far right politically, were also the places where austerity also bit hardest.

A different alternative explanation is that economic did cause Brexit but at the national rather than the local or individual level: the idea here is that difficult national economic conditions motivated voters in those areas to go for the far right, but again in this explanation this did not arise from direct local effects of austerity.

I don’t see how one could untangle these possible stories based on the data used in Fetzer’s article. But his story makes some sense and it’s something worth thinking about. I’d be interested to hear what Piero Stanig thinks about all this, as he is a coauthor (with Italo Colantone) of this article, Global Competition and Brexit, cited by Fetzer.