The Political Economy Of Structural Reforms

Do economic structural reforms have electoral consequences? This paper studies whether voters reward or punish governments for introducing structural economic reforms. Drawing on data from a sample of 122 democratic countries over the 1975-2006 period, I note—at first glance—that no significant relationship can be discerned between the probability of a government’s being voted out of office and its having put in place economic reforms in the areas of international trade, product markets, and domestic finance. However, such reforms do appear to have an impact on the outcome of subsequent elections, but to varying degrees, based on the factors of macroeconomic stability, institutional development, and a wise sequencing of proposed reforms. In other words, voters will tend to reward reformist governments if macroeconomic stability is attained, a certain threshold level of institutional quality is achieved, and an optimal sequencing of structural reforms is followed.