DP12673 The Reform Dilemma in Polarized Democracies

Author(s): Hans Gersbach, Oriol Tejada
Publication Date: February 2018
Keyword(s): costs of reform, democracy, elections, political polarization.
JEL(s): D72, D82
Programme Areas: Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12673

We study the feasibility and efficiency of policy reforms in democracies. We develop a simple election model where (i) reforms are costly for voters and politicians and these costs increase with the extent of policy change, and (ii) politicians differ in their ability to carry out reforms efficiently. We identify a so-called Reform Dilemma, which manifests itself in two variants. From a static perspective, low-reform-ability politicians are elected when political parties are polarized, who then impose high costs on citizens for each reform step. This property of elections arises as low reform ability is a substitute for policy commitment. From a dynamic perspective, incumbents may choose socially undesirable policies to align the social need for reform with their own reform ability and are thus re-elected regardless of their reform ability.