Structural Reforms and Elections: Evidence from a World-Wide New Dataset
We assemble two unique databases. One is on reforms in domestic finance, external finance, trade, product markets and labor markets, which covers 90 advanced and developing economies from 1973 to 2014. The other is on electoral results and timing of elections. In the 66 democracies considered in the paper, we show that liberalizing reforms engender benefits for the economy, but they materialize only gradually over time. Partly because of this delayed effect, and possibly because voters are impatient or do not anticipate future benefits, liberalizing reforms are costly to incumbents when implemented close to elections. We also find that the electoral effects depend on the state of the economy at the time of reform: reforms are penalized during contractions; liberalizing reforms undertaken in expansions are often rewarded. Voters seem to attribute current economic conditions to the reforms without fully internalizing the delay that it takes for reforms to bear fruit.
We thank participants and discussants in various conference and universities for their valuable comments and suggestions. We are grateful to Hites Ahir, Gabriele Ciminelli, Jun Ge, and Du Huancheng for superb research assistance, and Karina Chavez for excellent editorial assistance. We also thank Haillie Lee, Amy Pond, Maria Toyoda, and Ke Wang for their superb work on the project. This paper is part of a research project on macroeconomic policy in low-income countries supported by the U.K.’s Department for International Development. Quinn gratefully acknowledges support from the National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Dennis P. Quinn
Additional support was provided by the McDonough School of Business, Georgetown University and the National Science Foundation.