THE POLITICAL ECONOMY OF STRUCTURAL REFORMS

Year 2016, Volume: 5 Issue: 1, 25 - 69, 01.01.2016

Tolga Aksoy

Abstract

Do economic structural reforms have electoral consequences? This paper studies whether voters reward or punish governments for introducing structural economic reforms. Drawing on data from a sample of 122 democratic countries over the 1975-2006 period, I note—at first glance—that no significant relationship can be discerned between the probability of a government’s being voted out of office and its having put in place economic reforms in the areas of international trade, product markets, and domestic finance. However, such reforms do appear to have an impact on the outcome of subsequent elections, but to varying degrees, based on the factors of macroeconomic stability, institutional development, and a wise sequencing of proposed reforms. In other words, voters will tend to reward reformist governments if macroeconomic stability is attained, a certain threshold level of institutional quality is achieved, and an optimal sequencing of structural reforms is followed.

Keywords

Elections, Structural Reforms-Trade, Current Account, Agriculture, Networks, Capital Account, Domestic Finance-Institutions

Thanks

This paper is a modified version of the third chapter of my Ph.D dissertation at the Universit`a Luigi Bocconi, Italy. An earlier version was circulated under the title “Structural Reforms and Political Outcomes in Developing Countries.” I am indebted to my supervisor, Paolo Manasse, for his guidance and support, and to Chris Papageorgiou for kindly allowing me to use the IMF database on structural reforms. I would also like to thank Tito Boeri, Gino Gancia, Günes Gökmen, Giampaolo Lecce, Gianmarco Ottaviano, and the seminar participants at ESNIE 2014, at Marmara University and ICE-TEA 2016, for their helpful comments and suggestions. Financial support from the Fondazione Cariplo and the Universit`a Luigi Bocconi is gratefully acknowledged. The usual disclaimers apply.

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