The political cost of market reforms

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…some of the macroeconomic outcomes that one expects to result from adoption of “Washington consensus” policies, notably a reduction in inflation, are indeed electorally popular. But they also find that “structural reforms,” calculated as an average of indexes for tax reform, financial liberalization, trade liberalization, and privatization, have a highly significant negative impact on votes in presidential elections. The incumbent’s party typically lost 23 percent of its presidential vote on account of promarket reforms if it introduced a typical dose of such reforms (and still lost 15 percent when one allowed for the favorable indirect effects of those policies in reducing inflation or increasing growth).

More aggressive reformers, reforming a standard deviation above the mean, sacrificed 40 percent of their vote, or 27 percent allowing for feedback effects. The negative electoral impact of promarket reforms is robust. Reformers need to steel themselves to the likelihood that doing good for their countries will cost them votes. A continued supply of reformers presumes that some politicians are motivated by more than the prospect of re-election as hypothesized by most political scientists or the desire to enrich themselves as posited by public choice theory.

That is John Williamson, referring to Lora & Olivera’s ‘The Electoral Consequences of the Washington Consensus.’

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