Reforms and Re-Elections in OECD Countries

56 Pages Posted: 21 Dec 2009

See all articles by Marco Buti

Marco Buti

European Commission, DG II

Alessandro Turrini

European Commission; Centre for Economic Policy Research (CEPR)

Paul van den Noord

Organization for Economic Co-Operation and Development (OECD)

Pietro Biroli

University of Zurich - Department of Economics

Abstract

Economic reform is sometimes seen as damaging to a government’s re-election chances, but anecdotal evidence from OECD countries would not seem to strongly support this perception. This paper tests this hypothesis on a sample of 21 OECD countries over the period 1985–2003, controlling for other economic and political factors that may affect re-election. It is found that the chances of re-election for incumbent governments are not significantly affected by their record of pro-market reforms. However, the electoral impact of reform is found to differ strongly depending on which types of policies are considered. In particular, reform measures that are more likely to hurt large groups of ‘insiders’ seem electorally more damaging. A series of framework conditions appears to affect the impact of reforms on re-elections. Reformist governments in countries with rigid product and labour markets tend to be voted out of office, suggesting the existence of a ‘rigidity trap’. While fiscal stimulus is not an effective instrument to ‘sweeten the pill’ and raise the odds of re-election, the presence of liberal financial markets appears to soften electoral resistance to structural reform. The latter finding is of particular relevance in the current financial crisis: forward-looking governments should not rush to over-regulate financial markets in order not to compromise the feasibility of product and labour market reforms.

Suggested Citation

Buti, Marco and Turrini, Alessandro and van den Noord, Paul and Biroli, Pietro, Reforms and Re-Elections in OECD Countries. Economic Policy, Vol. 25, Issue 61, pp. 61-116, January 2010. Available at SSRN: https://ssrn.com/abstract=1525965 or http://dx.doi.org/10.1111/j.1468-0327.2009.00237.x

Marco Buti (Contact Author)

European Commission, DG II ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium
+32 2 296 2246 (Phone)
+32 2 299 3505 (Fax)

Alessandro Turrini

European Commission ( email )

Office BU-10/113
B-1049 Brussels
Belgium
+32 2 299 5072 (Phone)
+32 2 299 3505 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Paul Van den Noord

Organization for Economic Co-Operation and Development (OECD) ( email )

Economics Department (ECO)
2 rue Andre Pascal
75775 Paris Cedex 16
France

Pietro Biroli

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

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