- The political economy of structural reforms under a deficit restriction
- Journal of Macroeconomics
- Volume | Issue number
- 30 | 1
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
- This paper analyzes the incentives of a government facing electoral uncertainty to implement structural reforms in the presence
of a deficit restriction. In designing a reform package, the government faces a trade-off between enhancing its electoral
chances by providing compensation to private individuals and the cost of violating the deficit restriction. Ceteris paribus,
tighter sanctions, more volatile macroeconomic shocks and lower income inequality worsen the trade-off.
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