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From short-term to long-term orientation—political economy of the policy reform process

  • Andreas Freytag

    ()

  • Simon Renaud

    ()

Despite the fact that policymakers often have a short-term horizon and prefer discretionary over rule bound policy, one can observe policy reform with a focus on rules and long-term orientation. Sometimes reforms are driven by crisis, sometimes they are pursued in times of relative prosperity. The paper analyses reform processes theoretically under the assumption of imperfect knowledge. After the introduction, the second section of the paper shows that rule bound policy encourages a long-term orientation of policymakers, resulting in higher economic dynamics as compared with discretionary policy. In the third section, the political economy of the reform process, i.e. replacing discretionary by rule-bound policy, is analysed in an evolutionary setting. The basic hypothesis is that a policy reform is triggered in a feedback-process determined by four key factors: (1) an emerging shadow economy and growing corruption, (2) external, in particular international pressure, (3) increasing knowledge of policymakers with respect to the effectiveness of policy paradigms and (4) improved economic knowledge of the public. In a fourth section, we draw conclusions and present some preliminary empirical evidence.

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File URL: http://hdl.handle.net/10.1007/s00191-006-0049-x
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Article provided by Springer in its journal Journal of Evolutionary Economics.

Volume (Year): 17 (2007)
Issue (Month): 4 (August)
Pages: 433-449

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Handle: RePEc:spr:joevec:v:17:y:2007:i:4:p:433-449
DOI: 10.1007/s00191-006-0049-x
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/journal/191/PS2

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  1. Ulrich Witt, 2003. "Economic policy making in evolutionary perspective," Journal of Evolutionary Economics, Springer, vol. 13(2), pages 77-94, 04.
  2. Berger, Helge & de Haan, Jakob & Eijffinger, Sylvester C W, 2001. " Central Bank Independence: An Update of Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(1), pages 3-40, February.
  3. Uwe Cantner & Werner Gueth & Andreas Nicklisch & Torsten Weiland, 2003. "Competition in Innovation and Imitation - A Theoretical and Experimental Study -," Papers on Strategic Interaction 2004-02, Max Planck Institute of Economics, Strategic Interaction Group.
  4. Paldam, Martin, 2002. "The cross-country pattern of corruption: economics, culture and the seesaw dynamics," European Journal of Political Economy, Elsevier, vol. 18(2), pages 215-240, June.
  5. David Laidler, 2001. "The Role of the History of Economic Thought in Modern Macroeconomics," UWO Department of Economics Working Papers 20016, University of Western Ontario, Department of Economics.
  6. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
  7. William D. Nordhaus, 1989. "Alternative Approaches to the Political Business Cycle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(2), pages 1-68.
  8. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
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  10. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  11. Uwe Cantner & Kristina Dreßler & Jens J. Krüger, 2004. "Firm Survival in the German Automobile Industry," Jenaer Schriften zur Wirtschaftswissenschaft 08/2004, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.
  12. Uwe Cantner & Holger Graf & Dirk Fornahl, 2003. "Innovationssystem und Gründungsgeschehen in Jena: Erste Erkenntnisse einer Unternehmensbefragung," Jenaer Schriften zur Wirtschaftswissenschaft 06/2003, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.
  13. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
  14. Lutz Häselbarth & Armin Scholl, 2003. "Dynamische Bestellmengenplanung für verderbliche Luxusgüter," Jenaer Schriften zur Wirtschaftswissenschaft 13/2003, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.
  15. Witt, Ulrich, 1992. "The Endogenous Public Choice Theorist," Public Choice, Springer, vol. 73(1), pages 117-29, January.
  16. Jakob de Haan & Erik Leertouwer & Erik Meijer & Tom Wansbeek, 2003. "Measuring central bank independence: a latent variables approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 326-340, 08.
  17. repec:cup:cbooks:9780521659123 is not listed on IDEAS
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