The political cost of reforms (preliminar version of working paper number 1360: Uncertainty, electoral incentives and political myopia)

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• dc.contributor.author Bonfiglioli, Alessandraca
• dc.contributor.author Gancia, Gino A.ca
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2017-07-26T12:08:02Z
• dc.date.available 2017-07-26T12:08:02Z
• dc.date.issued 2010-01-01
• dc.date.modified 2017-07-23T02:13:40Z
• 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.format.mimetype application/pdfca
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1250
• dc.identifier.uri http://hdl.handle.net/10230/11712
• 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.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword elections
• dc.subject.keyword reforms
• dc.subject.keyword asymmetric information
• dc.subject.keyword uncertainty.
• dc.subject.keyword Macroeconomics and International Economics
• dc.title The political cost of reforms (preliminar version of working paper number 1360: Uncertainty, electoral incentives and political myopia)ca
• dc.type info:eu-repo/semantics/workingPaper