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Defying the 'Juncker Curse’: Can Reformist Governments Be Re-elected?

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  • Biroli, Pietro
  • Buti, Marco
  • Turrini, Alessandro Antonio
  • Van Den Noord, Paul

Abstract

European policy makers, notably in the euro area, seem to take for granted that the electorate will punish them for bold reform in product and labour markets. This may explain why progress in the euro area has been comparatively limited. This paper posits and, using a dataset for 21 OECD countries, shows that this fear of electoral backlashes is unfounded, provided that financial markets work well. The mechanisms involved are relatively straightforward: well functioning financial markets "bring forward" future yields of structural reform to the present, thus permitting to overcome possible short-run costs. As a result, the electorate tend to reward, not punish, reformist governments. This has important implications for the design of structural reform packages, with financial market reforms being an essential ingredient beside product and labour market reforms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6875.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6875

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Keywords: Economic and Monetary Union; electoral cycle; financial markets; structural reforms;

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Cited by:
  1. Jacques Pelkmans & Lourdes Acedo Montoya & Alessandro Maravalle, 2008. "How product market reforms lubricate shock adjustment in the euro area," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 341, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Alberto F. Alesina & Dorian Carloni & Giampaolo Lecce, 2011. "The Electoral Consequences of Large Fiscal Adjustments," NBER Working Papers 17655, National Bureau of Economic Research, Inc.
  3. Larch, Martin & Van den Noord, Paul & Jonung, Lars, 2010. "The stability and growth pact: lessons from the great recession," MPRA Paper 27900, University Library of Munich, Germany.
  4. Lucifora, Claudio & Moriconi, Simone, 2012. "Political Instability and Labor Market Institutions," IZA Discussion Papers 6457, Institute for the Study of Labor (IZA).
  5. Paul den Noord, 2011. "Turning the page? EU fiscal consolidation in the wake of the crisis," Empirica, Springer, Springer, vol. 38(1), pages 19-51, February.

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