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Defying the 'Juncker Curse’: Can Reformist Governments Be Re-elected?

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Author Info
Biroli, Pietro
Buti, Marco
Turrini, Alessandro Antonio
Van Den Noord, Paul

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Abstract

European policy makers, notably in the euro area, seem to take for granted that the electorate will punish them for bold reform in product and labour markets. This may explain why progress in the euro area has been comparatively limited. This paper posits and, using a dataset for 21 OECD countries, shows that this fear of electoral backlashes is unfounded, provided that financial markets work well. The mechanisms involved are relatively straightforward: well functioning financial markets "bring forward" future yields of structural reform to the present, thus permitting to overcome possible short-run costs. As a result, the electorate tend to reward, not punish, reformist governments. This has important implications for the design of structural reform packages, with financial market reforms being an essential ingredient beside product and labour market reforms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6875.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6875

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Related research
Keywords: Economic and Monetary Union electoral cycle financial markets structural reforms

Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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This page was last updated on 2008-11-7.

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