IDEAS home Printed from https://ideas.repec.org/p/euf/ecopap/0324.html
   My bibliography  Save this paper

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

Author

Listed:
  • Marco Buti
  • Alessandro Turrini
  • Paul Van den Noord
  • Pietro Biroli

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.

Suggested Citation

  • Marco Buti & Alessandro Turrini & Paul Van den Noord & Pietro Biroli, 2008. "Defying the 'Juncker Curse': Can Reformist Governments Be Re-elected?," European Economy - Economic Papers 2008 - 2015 324, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecopap:0324
    as

    Download full text from publisher

    File URL: https://ec.europa.eu/economy_finance/publications/pages/publication12586_en.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brender, Adi & Drazen, Allan, 2005. "Political budget cycles in new versus established democracies," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1271-1295, October.
    2. Giuseppe Bertola, 2007. "Finance and Welfare States in Globalising Markets," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Jeremy Lawson (ed.),The Structure and Resilience of the Financial System, Reserve Bank of Australia.
    3. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-2220, December.
    4. Xavier Debrun & Jean Pisani-Ferry & André Sapir, 2008. "Government size and output volatility- should we forsake automatic stabilisation?," Working Papers 47, Bruegel.
    5. Brender, Adi, 2003. "The effect of fiscal performance on local government election results in Israel: 1989-1998," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2187-2205, September.
    6. Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 327-361.
    7. Romain Duval & Jørgen Elmeskov, 2005. "The Effects of EMU on Structural Reforms in Labour and Product Markets," OECD Economics Department Working Papers 438, OECD Publishing.
    8. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    9. Adi Brender & Allan Drazen, 2005. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross-Section of Countries," NBER Working Papers 11862, National Bureau of Economic Research, Inc.
    10. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
    11. Tabellini, Guido & Alesina, Alberto, 1990. "Voting on the Budget Deficit," American Economic Review, American Economic Association, vol. 80(1), pages 37-49, March.
    12. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
    13. Poplawski Ribeiro, Marcos & Beetsma, Roel, 2008. "The political economy of structural reforms under a deficit restriction," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 179-198, March.
    14. Marco Buti & Werner Rüger & Alessandro Turrini, 2009. "Is Lisbon Far from Maastricht? Trade-offs and Complementarities between Fiscal Discipline and Structural Reforms," CESifo Economic Studies, CESifo, vol. 55(1), pages 165-196, March.
    15. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Piera Bello & Vincenzo Galasso, 2021. "The politics of ageing and retirement: Evidence from Swiss referenda," Population Studies, Taylor & Francis Journals, vol. 75(1), pages 3-18, January.
    3. Lucifora, Claudio & Moriconi, Simone, 2015. "Political instability and labour market institutions," European Journal of Political Economy, Elsevier, vol. 39(C), pages 201-221.
    4. Vincenzo Galasso, 2013. "Getting Fitter," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(03), pages 25-34, October.
    5. Alberto Alesina & Dorian Carloni & Giampaolo Lecce, 2012. "The Electoral Consequences of Large Fiscal Adjustments," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 531-570, National Bureau of Economic Research, Inc.
    6. Favero, Carlo A. & Galasso, Vincenzo, 2015. "Demographics and the Secular Stagnation Hypothesis in Europe," CEPR Discussion Papers 10887, C.E.P.R. Discussion Papers.
    7. Jante Parlevliet, 2017. "What drives public acceptance of reforms? Longitudinal evidence from a Dutch pension reform," Public Choice, Springer, vol. 173(1), pages 1-23, October.
    8. Jacques Pelkmans & Lourdes Acedo Montoya & Alessandro Maravalle, 2008. "How product market reforms lubricate shock adjustment in the euro area," European Economy - Economic Papers 2008 - 2015 341, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. István P. Székely & Melanie Ward-Warmedinger, 2018. "Reform Reversals: Areas, Circumstances and Motivations," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(4), pages 559-582, December.
    10. Paul den Noord, 2011. "Turning the page? EU fiscal consolidation in the wake of the crisis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(1), pages 19-51, February.
    11. Torój, Andrzej & Bednarek, Elżbieta & Bęza-Bojanowska, Joanna & Osińska, Joanna & Waćko, Katarzyna & Witkowski, Dariusz, 2012. "EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates," MF Working Papers 12, Ministry of Finance in Poland, revised 06 Mar 2012.
    12. Vincenzo Galasso, 2014. "The role of political partisanship during economic crises," Public Choice, Springer, vol. 158(1), pages 143-165, January.
    13. Tolga Aksoy, 2016. "The Political Economy Of Structural Reforms," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 5(1), pages 25-69, January.
    14. Elsa Fornero, 2015. "Economic-financial Literacy and (Sustainable) Pension Reforms: Why the Former is a Key Ingredient for the Latter," Bankers, Markets & Investors, ESKA Publishing, issue 134, pages 6-16, January-F.
    15. Ágota Scharle & Balázs Váradi & Flóra Samu, 2015. "Policy Convergence Across Welfare Regimes: The Case of Disability Policies. WWWforEurope Working Paper No. 76," WIFO Studies, WIFO, number 50914, April.
    16. Vincenzo Galasso, 2013. "Getting Fitter," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(3), pages 25-34, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alesina, A. & Passalacqua, A., 2016. "The Political Economy of Government Debt," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2599-2651, Elsevier.
    2. Alessandra Bonfiglioli & Gino Gancia, 2013. "Uncertainty, Electoral Incentives and Political Myopia," Economic Journal, Royal Economic Society, vol. 0, pages 373-400, May.
    3. Alessandra Bonfiglioli and Gino Gancia, 2010. "The Political Cost of Reforms," Working Papers 507, Barcelona School of Economics.
    4. Eslava, Marcela, 2006. "The Political Economy of Fiscal Policy: Survey," IDB Publications (Working Papers) 3343, Inter-American Development Bank.
    5. Alessandra Bonfiglioli & Gino Gancia, 2010. "The political cost of reforms (preliminar version of working paper number 1360: Uncertainty, electoral incentives and political myopia)," Economics Working Papers 1250, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2011.
    6. Marcela Eslava, 2011. "The Political Economy Of Fiscal Deficits: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 645-673, September.
    7. Marcela Eslava & Oskar Nupia, 2010. "Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture," Documentos CEDE 6713, Universidad de los Andes, Facultad de Economía, CEDE.
    8. Ziogas, Thanasis & Panagiotidis, Theodore, 2021. "Revisiting the political economy of fiscal adjustments," Journal of International Money and Finance, Elsevier, vol. 111(C).
    9. Linda Gonçalves Veiga, 2013. "Voting functions in the EU-15," Public Choice, Springer, vol. 157(3), pages 411-428, December.
    10. Balaguer-Coll, Maria Teresa & Brun-Martos, María Isabel & Forte, Anabel & Tortosa-Ausina, Emili, 2015. "Local governments' re-election and its determinants: New evidence based on a Bayesian approach," European Journal of Political Economy, Elsevier, vol. 39(C), pages 94-108.
    11. Dorn, Florian, 2023. "Elections and Government Efficiency," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277700, Verein für Socialpolitik / German Economic Association.
    12. García, Israel & Hayo, Bernd, 2021. "Political budget cycles revisited: Testing the signalling process," European Journal of Political Economy, Elsevier, vol. 69(C).
    13. Chortareas, Georgios & Logothetis, Vasileios & Papandreou, Andreas A., 2016. "Political budget cycles and reelection prospects in Greece's municipalities," European Journal of Political Economy, Elsevier, vol. 43(C), pages 1-13.
    14. Margarita Katsimi & Vassilis Sarantides, 2015. "Public investment and reelection prospects in developed countries," Southern Economic Journal, John Wiley & Sons, vol. 82(2), pages 471-500, October.
    15. Baskaran, Thushyanthan & Brender, Adi & Blesse, Sebastian & Reingewertz, Yaniv, 2016. "Revenue decentralization, central oversight and the political budget cycle: Evidence from Israel," European Journal of Political Economy, Elsevier, vol. 42(C), pages 1-16.
    16. Garmann, Sebastian, 2017. "Political budget cycles and fiscally conservative voters," Economics Letters, Elsevier, vol. 155(C), pages 72-75.
    17. Klein, Fabio Alvim & Sakurai, Sergio Naruhiko, 2015. "Term limits and political budget cycles at the local level: evidence from a young democracy," European Journal of Political Economy, Elsevier, vol. 37(C), pages 21-36.
    18. Frank Bohn & Jan-Egbert Sturm, 2021. "Do expected downturns kill political budget cycles?," The Review of International Organizations, Springer, vol. 16(4), pages 817-841, October.
    19. Masahiro Tanaka, 2015. "Measuring Political Budget Cycles: A Bayesian Semiparametric Assessment," Working Papers 1415, Waseda University, Faculty of Political Science and Economics.
    20. Savu, A., 2021. "The Local Political Economy of Austerity: Lessons from Hospital Closures in Romania," Cambridge Working Papers in Economics 2120, Faculty of Economics, University of Cambridge.

    More about this item

    Keywords

    Economic and Monetary Union; structural reforms; electoral cycle; financial markets; Buti; Turrini; Van den Noord; Biroli;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0324. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECFIN INFO (email available below). General contact details of provider: https://edirc.repec.org/data/dg2ecbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.