Working Paper: NBER ID: w26720
Authors: Alberto F. Alesina; Davide Furceri; Jonathan D. Ostry; Chris Papageorgiou; Dennis P. Quinn
Abstract: We assemble two unique databases. One is on reforms in domestic finance, external finance, trade, product markets and labor markets, which covers 90 advanced and developing economies from 1973 to 2014. The other is on electoral results and timing of elections. In the 66 democracies considered in the paper, we show that liberalizing reforms engender benefits for the economy, but they materialize only gradually over time. Partly because of this delayed effect, and possibly because voters are impatient or do not anticipate future benefits, liberalizing reforms are costly to incumbents when implemented close to elections. We also find that the electoral effects depend on the state of the economy at the time of reform: reforms are penalized during contractions; liberalizing reforms undertaken in expansions are often rewarded. Voters seem to attribute current economic conditions to the reforms without fully internalizing the delay that it takes for reforms to bear fruit.
Keywords: structural reforms; elections; economic growth; political economy; democracy
JEL Codes: D72; J65; L43; L51; O43; O47; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liberalizing reforms (E69) | economic growth (O49) |
| regulatory tightening (G18) | economic growth (O49) |
| timing of reforms during economic expansions (E65) | economic growth (O49) |
| liberalizing reforms during economic contractions (E69) | electoral outcomes (K16) |
| reforms implemented close to elections (K16) | vote share for incumbents (D72) |
| timing of reforms at the beginning of term during economic expansions (E65) | successful implementation of reforms (D78) |