Political Constraints and Public Support for Market Reform

Abstract

As concerns about reform fatigue in lower- and middle-income countries have become more widespread, so has the search for ways of boosting support for market-oriented reforms. While the effects of political institutions on reform results have been extensively analyzed, there has been relatively little investigation of their effects on public opinion. We argue that constitutional and extra-constitutional reforms that place limits on the discretionary authority of public officials, and that enable voters to monitor, reward, and sanction politicians can enhance the legitimacy of market reforms. We present a voting model with asymmetric information to illustrate that these formal-legal reforms provide a credible signal of reformers' commitments to ensure that the benefits from reforms are widely shared. Using panel data based on public-opinion barometers from Eastern Europe and Latin America we examine the effects of changes in political accountability on public support for markets. We find that political accountability boosts support for markets, but that this effect declines as the reform process matures.

Keywords: Political Economy, Reform, Institutions, Signaling

JEL Classification: D72, P16, P26