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

52 Pages Posted: 10 Feb 2020

See all articles by Gunes Gokmen

Gunes Gokmen

Lund University

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

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 reforms 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 reforms 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. IZA Discussion Paper No. 12932. Available at SSRN: https://ssrn.com/abstract=3534480

Gunes Gokmen (Contact Author)

Lund University

Box 117
Lund, SC Skane S221 00
Sweden

Tommaso Nannicini

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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