The Political Costs of Reforms: Fear or Reality 2020? | The World Bank | 16 January 2020 | Sasana Kijang, Bank Negara Malaysia, 2, Jalan Dato Onn, Kuala Lumpur, 50480 Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur, Malaysia

While there is broad agreement on their economic benefits, the political-economy of reforms is less settled. This paper examines whether structural reforms carry an electoral cost in a sample of 66 advanced, emerging and developing market economies, using a newly constructed database on regulatory changes in six different areas. The results can be summarized as follows. First, because their gains often take time to materialize, reforms are associated with significant electoral costs when implemented in the runup to elections. In contrast, reforms undertaken early in an incumbent’s term do not affect election prospects. Second, reforms carry political costs when enacted in periods of weak economic activity, while they have benign electoral consequences in good times. Third, reforms that engender large short-term adverse distributional effects— notably some types of financial deregulation and external capital account liberalization — can prove to be particularly costly.

2020 Speakers

Gabriele Ciminelli
Assistant Professor of Finance and Economics