Populist attitudes, fiscal illusion and fiscal preferences: evidence from Dutch households

It is well documented that the public is often poorly informed about economic facts and mechanisms. In the domain of fiscal policy, this may make voters susceptible to favour spending, while underestimating its costs (fiscal illusion). While politicians typically have a comparative advantage in economic policymaking, voters may be less inclined to rely on proposals for prudent fiscal policy if they do not believe that these politicians act in their best interest – an idea that in recent decades has become more prevalent. Using a novel dataset from the Netherlands, this paper assesses whether people with strong populist ideas also report significantly more expansionary fiscal preferences, and whether populist attitudes reinforce the risk of fiscal illusion. We find that (i) populist attitudes indeed come with more expansionary preferences, (ii) literacy and information provision – which have the potential to alleviate the occurrence of fiscal illusion – contribute to less expansionary fiscal preferences and (iii) the effect of literacy is conditional on the level of populist sentiment. In particular, we find that poorly literate respondents report significantly higher support for tax relief only when they hold strong populist attitudes, but not when they have more favourable attitudes towards the elite.

Keywords: fiscal preferences; literacy; information; fiscal illusion; populism
JEL codes D72; D74; D83; E62; F52; G53; H23; H31

Working paper no. 731