DP14371 Structural Reforms and Elections: Evidence from a World-Wide New Dataset
We assemble two unique databases. One is on reforms in domestic finance, external finance, trade, product markets and labor markets, which covers 90 advanced and developing economies from 1973 to 2014. The other is on electoral results and timing of elections. In the 66 democracies considered in the paper, we show that liberalizing reforms engender benefits for the economy, but they materialize only gradually over time. Partly because of this delayed effect, and possibly because voters are impatient or do not anticipate future benefits, liberalizing reforms are costly to incumbents when implemented close to elections. We also find that the electoral effects depend on the state of the economy at the time of reform: reforms are penalized during contractions; liberalizing reforms undertaken in expansions are often rewarded. Voters seem to attribute current economic conditions to the reforms without gully internalizing the delay that it takes for reforms to bear fruit.