The Political Costs of Reforms: Fear or Reality?

By Davide Furceri, Jun Ge, Jonathan David Ostry, Chris Papageorgiou, Gabriele Ciminelli

October 18, 2019

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Davide Furceri, Jun Ge, Jonathan David Ostry, Chris Papageorgiou, and Gabriele Ciminelli. The Political Costs of Reforms: Fear or Reality?, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

Many countries are experiencing persistent, weak medium-term growth and limited fiscal space. Against this background, economic policy agendas—in both advanced and developing economies—are focusing increasingly on structural reforms. While there is broad agreement on the economic benefits of structural reforms, the political-economy of reform is less settled. This is because reforms may generate gains only in the longer term while distributional effects may be sizable in the short run, and because governments may lack political capital to confront vocal interest groups. In these circumstances, politicians may hold back on reforms, fearing they will be penalized at the ballot box. The aim of this Staff Discussion Note is to examine whether the fear of a political cost associated with structural reforms is justified by the available evidence, and whether there are lessons from the data about how reform strategies might be designed to mitigate potential political costs. It provides a major addition to recent IMF analysis examining the output and employment effect of reforms

Subject: Balance of payments, Capital account, Current account, Financial regulation and supervision, Financial sector reform, Fiscal consolidation, Fiscal policy, Macrostructural analysis, Structural reforms

Keywords: Capital account, Central Asia, Current account, Elections, Financial sector reform, Fiscal consolidation, Government, Government choice, Government incompetence, Government leader, Incumbent government party, Left-leaning government, Middle East, Party, Political Economy, Reform, Reform indicator, Regulation, SDN, Structural reforms, Sub-Saharan Africa, Trade reform index

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Staff Discussion Notes No. 2019/008
Stock No:

SDNEA2019008
ISBN:

9781513517155
ISSN:

2617-6750

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