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The Political Costs of Reforms: Fear or Reality?

January 16, 2020

DECRG Kuala Lumpur Seminar Series

  • Many countries are experiencing persistent, weak medium-term growth and limited fiscal space. Against this background, economic policy agendas are focusing increasingly on structural reforms. While there is broad agreement on their economic benefits, the political-economy of reforms is less settled. This paper examines whether structural reforms carry an electoral cost in a sample of 66 advanced, emerging and developing market economies, using a newly constructed database on regulatory changes in six different areas. The results can be summarized as follows. First, because their gains often take time to materialize, reforms are associated with significant electoral costs when implemented in the runup to elections. In contrast, reforms undertaken early in an incumbent’s term do not affect election prospects. Second, reforms carry political costs when enacted in periods of weak economic activity, while they have benign electoral consequences in good times. Third, reforms that engender large short-term adverse distributional effects— notably some types of financial deregulation and external capital account liberalization — can prove to be particularly costly. All in all, our analysis suggest that, to ensure support for reforms, governments should act swiftly following an electoral victory and implement reforms when economic conditions are favourable. Policymakers should also factor in and address upfront the income-distribution effects of reforms. Fiscal incentives and policies (such as job search assistance, retraining, and stronger social safety nets) to support those who are most affected by reforms may help advance the reform agenda by mitigating potential social and distributional costs.

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    Watch and join us at Live Chat: Seminar will be live-streamed, allowing for online audience participation (only available during the seminar)  

  • Gabriele Ciminelli is Assistant Professor of Finance and Economics at the Asia School of Business (ASB) in Kuala Lumpur. His research interests broadly span the fields of international finance and applied macroeconomics. Before joining the ASB, Gabriele worked as Projects Officer in the Research Department of the International Monetary Fund, where he conducted research on structural reforms and labor markets in middle- and low-income countries. His professional background is complemented by working experiences in other international organizations, such as the European Bank for Reconstruction and Development, and the European Commission. Gabriele obtained his Ph.D. in Economics from the Tinbergen Institute and the University of Amsterdam (the Netherlands). He also holds a M.A. in International Relations from Bologna University (Italy).

DETAILS

  • WHEN: Thursday, January 16, 2020, 12:30 -2:00PM
  • WHERE: World Bank Malaysia Office, Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn
  • RSVP: Kindly RSVP by Wednesday, January 15, 2020
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