High Sovereign Debt and Social Solidarity in Advanced Economies

To keep borrowing costs down, indebted governments strive to signal their commitment to fiscal discipline. As a result, relatively low debt-servicing costs coexistwith preemptive fiscal adjustments and pessimistic rhetoric regarding the country'sfinances. We hypothesize that this combination erodes social solidarity toward immigrants and low-income households because it changes voters' perceptions of what the country can "afford". Using two video animations presenting a country's fiscal situation as either sustainable or unsustainable, we find no evidence that perceptions of debt (un)sustainability affect social solidarity in the hypothesized way. One possible explanation, we show, is fundamental uncertainty over the distributional implications of scale adjustment: unable to foresee the consequences of deteriorating public finances, people struggle to connect the dots in the ways originally hypothesized. Still, while opinions did not differ across treatment conditions, the likelihood of defending one's opinion in a letter to the government did, suggesting political engagement might be affected as people form beliefs about the sustainability of public finances.