Populist Attitudes, Fiscal Illusion and Fiscal Preferences : Evidence from Dutch Households1

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. First, we find that populist attitudes of respondents prove a very relevant predictor of their fiscal preferences. This finding is robust to the use of an instrumental variable (IV) estimation in which we use a proxy of populist attitudes recorded prior to the financial crisis. Second, we find that both the literacy of respondents and information provision (as measured by an information experiment) contribute to more prudent fiscal preferences. Third, we find that the effect of literacy is conditional on the level of populist sentiment. In particular, poorly literate respondents report significantly higher support for tax relief only when they hold strong populist attitudes, but not when they report lower levels of populist sentiment