The Political Costs of Reforms: Fear or Reality?
Staff Discussion Notes, October 18, 2019
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- The Political Costs of Reforms: Fear or Reality?
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Bibliographic details
- Authors: Davide Furceri, Jun Ge, Jonathan David Ostry, Chris Papageorgiou, Gabriele Ciminelli
- Published: October 18, 2019
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781513517155.006
Overview
- Authors: Davide Furceri, Jun Ge, Jonathan David Ostry, Chris Papageorgiou, Gabriele Ciminelli
- Publication: Staff Discussion Notes No. 2019/008
- Date: October 18, 2019
- Pages: 30
- Volume: 2019
- Issue: 008
- DOI: https://doi.org/10.5089/9781513517155.006
- ISBN: 9781513517155
- ISSN: 2617-6750
- Core question: Whether the political cost associated with structural reforms—specifically electoral punishment for governments undertaking reforms—is supported by available evidence, and what design lessons can mitigate potential political costs.
Context and motivation
- Many countries face persistent, weak medium-term growth and limited fiscal space.
- Economic policy agendas in both advanced and developing economies are increasingly focused on structural reforms.
- Tension: economic benefits of structural reforms are broadly agreed, but political-economy considerations are less settled because:
- Reforms may generate gains only in the longer term.
- Distributional effects can be sizable in the short run.
- Governments may lack political capital to confront vocal interest groups.
- Political implication: politicians may withhold reforms for fear of being penalized at the ballot box.
Main findings (evidence-based)
- The Staff Discussion Note examines whether fear of electoral punishment for reformers is justified by available evidence.
- The study is positioned as a major addition to recent IMF analysis examining the output and employment effect of reforms.
- Subject areas covered include: Balance of payments, Capital account, Current account, Financial regulation and supervision, Financial sector reform, Fiscal consolidation, Fiscal policy, Macrostructural analysis, Structural reforms.
- Keywords associated with the analysis: 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.
Policy implications and design lessons
- Aim: identify whether data support the fear of political costs and whether reform strategies can be designed to mitigate such costs.
- Implicit policy-relevant directions (as drawn from the report’s aims and scope):
- Consider timing and sequencing of reforms to manage short-run distributional effects versus long-term gains.
- Account for political capital constraints and the influence of vocal interest groups when designing reform strategies.
- Use evidence on output and employment effects of reforms to inform communication and compensation mechanisms that reduce electoral backlash.
Contribution
- Provides empirical analysis on the interplay between structural reforms and political outcomes, complementing IMF work on economic effects (output and employment) of reforms.
- Targets both advanced and developing economy contexts, with attention to sectoral and regional variations suggested by keywords (e.g., Central Asia, Middle East, Sub-Saharan Africa).
Source: Davide Furceri, Jun Ge, Jonathan David Ostry, Chris Papageorgiou, and Gabriele Ciminelli, "The Political Costs of Reforms: Fear or Reality?", Staff Discussion Notes 2019, 008 (2019).
Content in this bundle
- Staff Discussion Note