The political cost of reforms

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Bonfiglioli, Alessandra; Gancia, Gino. The political cost of reforms. 2010
http://hdl.handle.net/10230/11712
To cite or link this document: http://hdl.handle.net/10230/11712
dc.contributor.author Bonfiglioli, Alessandra
dc.contributor.author Gancia, Gino
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 2010-01-01
dc.identifier.uri http://hdl.handle.net/10230/11712
dc.description.abstract This paper formalizes in a fully-rational model the popular idea that politicians perceive an electoral cost in adopting costly reforms with future benefits and reconciles it with the evidence that reformist governments are not punished by voters. To do so, it proposes a model of elections where political ability is ex-ante unknown and investment in reforms is unobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians make too little reforms in an attempt to signal high ability and increase their reappointment probability. Although in a rational expectation equilibrium voters cannot be fooled and hence reelection does not depend on reforms, the strategy of underinvesting in reforms is nonetheless sustained by out-of-equilibrium beliefs. Contrary to the conventional wisdom, uncertainty makes reforms more politically viable and may, under some conditions, increase social welfare. The model is then used to study how political rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of this theory are consistent with a number of empirical regularities on the determinants of reforms and reelection. They are also consistent with a new stylized fact documented in this paper: economic uncertainty is associated to more reforms in a panel of 20 OECD countries.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 1250
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title The political cost of reforms
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2014-06-03T07:14:27Z
dc.subject.keyword Macroeconomics and International Economics
dc.subject.keyword elections
dc.subject.keyword reforms
dc.subject.keyword asymmetric information
dc.subject.keyword uncertainty.
dc.rights.accessRights info:eu-repo/semantics/openAccess


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