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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