Explaining Reform Deadlocks
AbstractCountries are often slow to adjust their economic structures to new necessities although this reform reluctance is costly in terms of growth and employment. This paper analyses the relevant factors that block or foster economic reforms. Theoretical considerations show that there are at least three classes of potentially relevant factors: the objective need for reforms, political-economic issues and factors associated with limited rationality or rational ignorance. In the empirical analysis, a reform event is quantified as a significant change of the Economic Freedom of the World indicator within a five-year-period. This allows to run probit estimations for a large country panel starting in the 1970s where the probability of reform is explained by a number of proxies covering all three classes of potential factors. The results suggest that the initial extent of economic freedom and growth performance are empirically relevant factors. Furthermore, countries with an ageing population appear to behave less reform friendly. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 04-39.
Date of creation: 2004
Date of revision:
economic policy reforms; economic freedom; reform resistance; limited rationality;
Find related papers by JEL classification:
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H00 - Public Economics - - General - - - General
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