Attitudes towards euro area reforms: Evidence from a randomized survey experiment

https://doi.org/10.1016/j.ejpoleco.2020.101971Get rights and content

Highlights

  • Randomized survey experiment on attitudes towards euro area reform proposals.

  • High responsiveness to information about potential adverse effects of proposals.

  • Strong association between individual characteristics and support for proposals.

Abstract

This paper provides insights into the determinants of euro area reform preferences by means of a randomized survey experiment in Germany. Respondents are confronted with a pro and a contra argument to reform proposals on a European Unemployment Benefit Scheme and a Sovereign Insolvency Procedure, respectively, with the contra argument being varied across respondents. Our results for the control group suggest that there is a low willingness to accept fiscal risk-sharing through common unemployment insurance, while a sovereign insolvency procedure aimed at strengthening market discipline is supported by a majority of the survey participants. Our randomized treatments highlighting specific potential adverse effects of the reforms lead to significant downward shifts in approval rates. Altruism, EU support, nationalism, political preferences and income are important predictors of support for the reform proposals. We also show that there is a striking contrast between the low level of support for transfers to other euro area member states and a broad acceptance of inner German transfers.

Introduction

Ten years after the outbreak of the financial and economic crisis and the following European sovereign debt crisis, the debate about institutional reforms in the euro area is still ongoing. To date, no consensus has been reached on the necessary policies to achieve a more sustainable institutional framework. Some observers argue that the Economic and Monetary Union (EMU) lacks instruments to deal with asymmetric macroeconomic shocks and that the risk of a break-up of the euro zone might materialize in the next recession unless member states are willing to show more solidarity with crisis-hit countries. In line with this reasoning, institutions like the IMF or the European Commission have outlined proposals including stronger elements of fiscal risk-sharing and a macroeconomic stabilization function at euro area level.1 This view has been criticized by those who are concerned about permanent transfers from donor to recipient countries undermining the credibility of the no-bailout clause and incentives for sound fiscal and economic policies.

Against this background, our paper examines public attitudes in Germany towards two widely discussed proposals representing these seemingly opposing views described above: a European Unemployment Benefit Scheme (EUBS) and a Sovereign Insolvency Procedure (SIP). While supporters of more fiscal risk-sharing have proposed a EUBS as a key instrument to foster solidarity in the EMU and to make member states more resilient against asymmetric shocks, the introduction of a SIP is viewed by advocates of more market based fiscal discipline as indispensable in order to reinforce the credibility of no bailout provisions.2 These two proposals can thus be viewed as exemplarily for the main political conflict in the debate about EMU reform centering around the need of fiscal transfers on the one hand versus fiscal discipline on the other hand (Lehner and Wasserfallen, 2019).

We study attitudes towards the two EMU reform proposals by means of survey experiments. The design of the survey experiments is as follows. In a short introductory text, survey participants are informed about the basic rationale of the policy proposal. Next, respondents are confronted with a pro and a contra argument to the proposal, respectively. While all participants receive the same pro argument, there are two contra arguments both for the EUBS (which we label permanent transfers and moral hazard treatments) and the SIP (self-fulfilling prophecy and rising risk premia) which are randomized across respondents. This way respondents receive competing frames before being asked about their attitude towards the proposal (Chong and Druckman, 2013). Due to random assignment, differences in approval rates between subgroups can be interpreted as the causal effect of our treatments, reflecting the importance respondents attach to the different contra arguments.

Our paper provides insights into the determinants of reform preferences in the context of the debate about institutional reforms in the euro area.3 We aim to contribute to a better understanding of the key politico-economic objections that need to be overcome such that reforms in the euro area become politically feasible. Our results may thus also be valuable for policy-makers. If the driving forces behind voters' attitudes towards EMU reform proposals are taken into account, for example by designing the policy instruments such that their potential undesired effects stated in the contra arguments were to be avoided, this may increase their political feasibility.

We contribute to the literature studying attitudes towards European fiscal integration and bailouts of euro zone countries during the recent sovereign debt crisis (Bechtel et al., 2014; Daniele and Geys, 2015; Kleider and Stoeckel, 2019; Beetsma et al., 2020; Nicoli et al., 2020). A general conclusion from this literature is that characteristics like altruism and cosmopolitanism as well as party preferences strongly correlate with support for bailout payments, whereas economic self-interest does not seem to play a major role. We show that some of these results do not hold in the context of the reform proposals considered in this paper and discuss how our results can be reconciled with this literature.

More generally, our paper is related to different strands of the literature studying determinants of policy preferences and attitudes towards social norms. In the political science literature, recent contributions have conducted conjoint experiments, also referred to as hypothetical vignettes, to study which dimensions of a policy affect its public support (Bechtel and Scheve, 2013; Bechtel et al., 2017; Gallego and Marx, 2017; Beetsma et al., 2020). Methodologically related are studies in the social sciences including the public choice and political economy literature that study attitudes towards social norms and justice evaluations (Traxler and Winter, 2012; Auspurg et al., 2017; Abraham et al., 2018). In the economics literature, several papers have shown how policy preferences can be affected by information provision (for a review, see Haaland et al. (2020)). Examples are Cruces et al. (2013), Kuziemko et al. (2015) or Alesina et al. (2018) who study how information treatments concerning income distribution and intergenerational mobility affect preferences for redistribution. Other influential studies have shown that the framing of a policy, i.e., the means of presenting otherwise identical information can have significant effects in economic policy decisions (Kuehnhanns et al., 2015).

Our approach differs from pure information treatments in that we provide respondents with arguments in favor of and against the policy proposals. This is motivated by the observation that the economic effects of the reform proposals considered in this paper entail a certain degree of uncertainty and are highly controversial even among economic experts.4 In particular, winners and losers of the reforms – within and across member states – cannot be easily assessed ex-ante.5

Our key results are as follows. Among the respondents in the German Internet Panel, a longitudinal panel survey representative of the German population aged 16 to 75, there is a low willingness to accept fiscal risk-sharing through a EUBS. 51 (20) percent of respondents in the control group reject (support) the EUBS proposal. In contrast, a SIP is much more popular. Its approval (rejection) rate among respondents in the control group amounts to 54 (17) percent. We find that our randomized treatments, confronting survey participants with potential adverse effects of the policy proposals often brought forward by critics, lead to significant downward shifts in approval rates compared to the control group. In case of the EUBS proposal, our results reveal that the rejection rate among respondents receiving a moral hazard (permanent transfers) contra argument is 9 (6) percentage points higher, the approval rate 5 (3) percentage points lower compared to the control group. The average marginal treatment effects of the two contra arguments are statistically different at the 10-percent level. In the light of the low overall approval rate amounting to 20 percent in the control group, these are very large effects reducing the approval rates in the treatment groups by 25 (15) percent.

In case of the SIP proposal, rejection (approval) rates in the treated groups are 5–6 (8) percentage points higher (lower) compared to the control group, with no statistical differences in average marginal treatment effects. Given an approval rate of 54 percent in the control group, this effect amounts to a reduction in the treatment group's approval rates of 15 percent.

We further document the association between support for the euro area reform proposals on the one hand and various individual characteristics such as income, altruism, nationalism, EU support or political preferences, as well as attitudes towards domestic policies promoting fiscal solidarity and fiscal discipline – the German fiscal equalization scheme and the German public debt ceiling – on the other hand.

The remainder of the paper is structured as follows. In Section 2, we present the survey experiments and the empirical strategy. Our main results are presented in Section 3. In Section 4, we study heterogeneous treatment effects and provide robustness checks. Section 5 concludes.

Section snippets

Empirical strategy

Data and Sample The online experiments are conducted in the German Internet Panel (GIP) which has been conducted by the Collaborative Research Center “Political Economy of Reforms” (SFB 884) at the University of Mannheim since 2012.6

Randomized survey experiments

Fig. 1, Fig. 2 and Table 5 show approval and rejection rates for the EUBS and SIP proposal conditional on treatment status, respectively.11

Heterogeneous treatment effects

We investigate whether some respondents in the treatment groups react more strongly to the contra arguments than others. For example, it is conceivable that some respondents are better informed than others and already formed an opinion about the two proposals before taking part in the survey experiments. This could be the case as the debate about EMU reform has been featured prominently in economic news since the outbreak of the European sovereign debt crisis in 2009 (Picard, 2015). Provided

Concluding remarks

The debate about reforming the institutional architecture in the euro zone has been highly controversial and there are fierce negotiations among member states. Reform proposals put forward so far point in different directions. On the one hand, some observers advocate a fiscal union design with deeper fiscal integration and stronger elements of fiscal risk-sharing. Supporters of this approach take the US with its federal income tax system and an unemployment insurance program with federal

Declaration of competing interest

None.

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    We are grateful for the helpful comments and suggestions by Michael Georgiou Arghyrou, Frank Vandenbroucke, Armin Steinbach, the editor and two anonymous reviewers of this journal, as well as conference and seminar participants in Brussels (EconPol Europe), Madrid (ADEMU), Mannheim (MATAX, ZEW) and Munich (ifo) as well as of the Forum “Future Europe” organized by the ESMT and the German Council of Economic Experts. The usual disclaimer applies.

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