Policies in Hard Times: Assessing the Impact of Financial Crises on Structural Reforms

35 Pages Posted: 3 Oct 2017 Last revised: 31 Jan 2019

See all articles by Gunes Gokmen

Gunes Gokmen

New Economic School (NES)

Tommaso Nannicini

Bocconi University - Department of Economics; IZA Institute of Labor Economics

Massimiliano Gaetano Onorato

University of Bologna - Department of Economics

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Date Written: November 30, 2018

Abstract

It is commonly argued that crises open up a window of opportunity to implement policies that otherwise would not have the necessary political backing. The argument goes that the political cost of deep reforms declines as crises unravel structural problems that need to be urgently rectified and the public is more willing to bear the pains associated with such reforms. This paper casts doubt on this prevalent view by showing that not only the crises-reforms nexus is unfounded in the data, but rather crises are associated with slowing structural reforms depending on the institutional environment. In particular, we look at measures of liberalization in international trade, agriculture, network industries, and financial markets. We find that, after a financial crisis, democracies neither open nor close their economy. On the contrary, autocracies reduce liberalizations in multiple economic sectors, as the fear of regime change lead non-democratic rulers to please vested economic interests.

Keywords: Financial Crises, Structural Reforms, Institutional Systems, IMF Programs, Government Crises, Public Opinion

JEL Classification: E44, G01, L51, P16

Suggested Citation

Gokmen, Gunes and Nannicini, Tommaso and Onorato, Massimiliano Gaetano and Papageorgiou, Chris, Policies in Hard Times: Assessing the Impact of Financial Crises on Structural Reforms (November 30, 2018). Available at SSRN: https://ssrn.com/abstract=3030620 or http://dx.doi.org/10.2139/ssrn.3030620

Gunes Gokmen

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Tommaso Nannicini (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Massimiliano Gaetano Onorato

University of Bologna - Department of Economics ( email )

Bologna
Italy

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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