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

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  • Andreas Freytag

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  • Simon Renaud

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Abstract

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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Suggested Citation

  • Andreas Freytag & Simon Renaud, 2007. "From short-term to long-term orientation—political economy of the policy reform process," Journal of Evolutionary Economics, Springer, vol. 17(4), pages 433-449, August.
  • Handle: RePEc:spr:joevec:v:17:y:2007:i:4:p:433-449
    DOI: 10.1007/s00191-006-0049-x
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Freytag, Andreas & Pehnelt, Gernot, 2009. "Debt Relief and Governance Quality in Developing Countries," World Development, Elsevier, vol. 37(1), pages 62-80, January.
    2. Kontodaimon, Martha & Neumärker, Bernhard, 2015. "Two level reform game problems of Greece," The Constitutional Economics Network Working Papers 03-2015, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    3. Martin Binder, 2014. "Should evolutionary economists embrace libertarian paternalism?," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 515-539, July.
    4. repec:eee:worbus:v:53:y:2018:i:2:p:263-279 is not listed on IDEAS
    5. Luciano Marcello Milone, 2015. "Structural Reforms in the European Union after the Global Crisis: Problems and Prospects," Working Papers 171, University of Rome La Sapienza, Department of Public Economics.

    More about this item

    Keywords

    Evolutionary learning process; Active learning; Pathological learning; Long-term orientation; Rules; Time-consistency; Policy reform; B52; D72;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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