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Business and Economics > Finance: General

You are looking at 1 - 7 of 7 items for :

  • Type: Journal Issue x
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Cover Staff Discussion Notes
The Political Costs of Reforms: Fear or Reality?
Davide Furceri
,
Jun Ge
,
Mr. Jonathan David Ostry
,
Mr. Chris Papageorgiou
, and
Gabriele Ciminelli
Many countries are experiencing persistent, weak medium-term growth and limited fiscal space. Against this background, economic policy agendas—in both advanced and developing economies—are focusing increasingly on structural reforms. While there is broad agreement on the economic benefits of structural reforms, the political-economy of reform is less settled. This is because reforms may generate gains only in the longer term while distributional effects may be sizable in the short run, and because governments may lack political capital to confront vocal interest groups. In these circumstances, politicians may hold back on reforms, fearing they will be penalized at the ballot box. The aim of this Staff Discussion Note is to examine whether the fear of a political cost associated with structural reforms is justified by the available evidence, and whether there are lessons from the data about how reform strategies might be designed to mitigate potential political costs. It provides a major addition to recent IMF analysis examining the output and employment effect of reforms
Keywords:
SDN; government; party; reform; incumbent government party; government incompetence; Elections; Regulation; Political Economy; government leader; left-leaning government; government choice; trade reform index; reform indicator; Fiscal consolidation; Structural reforms; Financial sector reform; Capital account; Current account; Middle East; Central Asia; Sub-Saharan Africa
Cover Staff Discussion Notes
Designing Labor Market Institutions in Emerging and Developing Economies: Evidence and Policy Options
Mr. Romain A Duval
and
Mr. Prakash Loungani
This paper discusses theoretical aspects and evidences related to designing labor market institutions in emerging market and developing economies. This note reviews the state of theory and evidence on the design of labor market institutions in a developing economy context and then reviews its consistency with actual labor market advice in a selected set of emerging and developing economies. The focus is mainly on three broad sets of institutions that matter for both workers’ protection and labor market efficiency: employment protection, unemployment insurance and social assistance, minimum wages and collective bargaining. Text mining techniques are used to identify IMF recommendations in these areas in Article IV Reports for 30 emerging and frontier economies over 2005–2016. This note has provided a critical review of the literature on the design of labor market institutions in emerging and developing market economies, and benchmarked the advice featured in IMF recommendations for 30 emerging market and frontier economies against the tentative conclusions from the literature.
Keywords:
SDN; collective bargaining; unemployment insurance; severance pay; developing economy; UI system; Labor Market Institutions; Employment Protection; Unemployment Benefits; Social Assistance; Cash Transfers; Minimum Wage; monopsony power; firm level; income group; Emerging and frontier financial markets; Minimum wages; Labor markets; Africa; risk pooling; wage inequality
Cover IMF Working Papers
The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries?
Mr. Romain A Duval
,
Davide Furceri
, and
Jakob Miethe
The political economy literature has put forward a multitude of hypotheses regarding the drivers of structural reforms, but few, if any, empirically robust findings have emerged thus far. To make progress, we draw a parallel with model uncertainty in the growth literature and provide a new version of the Bayesian averaging of maximum likelihood estimates (BAMLE) technique tailored to binary logit models. Relying on a new database of major past labor and product market reforms in advanced countries, we test a large set of variables for robust correlation with reform in each area. We find widespread support for the crisis-induces-reform hypothesis. Outside pressure increases the likelihood of reform in certain areas: reforms are more likely when other countries also undertake them and when there is formal pressure to implement them. Other robust correlates are more specific to certain areas—for example, international pressure and political factors are most relevant for product market and job protection reforms, respectively.
Keywords:
WP; product market reform; business cycle; unemployment benefit; political economy; Structural reforms; labor market; product market; deregulation; employment protection; unemployment benefits; Bayesian averaging of maximum likelihood estimates; centralization gov.; EU country; government coalition; product market flexibility; party majority; political orientation; political system; left-of-center government; product market deregulation; government party majority; government vote share; Labor market reforms; Commodity markets; Public investment and public-private partnerships (PPP); Eastern Europe; Southern Europe
Cover IMF Working Papers
A Narrative Database of Major Labor and Product Market Reforms in Advanced Economies
Mr. Romain A Duval
,
Davide Furceri
,
Bingjie Hu
,
João Tovar Jalles
, and
Huy Nguyen
This paper describes a new database of major labor and product market reforms covering 26 advanced economies over the period 1970-2013. The focus is on large changes in product market regulation in seven individual network industries, employment protection legislation for regular and temporary workers, and the replacement rate and duration of unemployment benefits. The main advantage of this dataset is the precise identification of the nature and date of major reforms, which is valuable in many empirical applications. By contrast, the dataset does not attempt to measure and compare policy settings across countries, and as such is no substitute for other publicly available indicators produced, for example, by the ILO, the OECD or the World Bank. It should also be seen as work in progress, for researchers to build on and improve upon. Based on the dataset, major reforms appear to have been more frequent in product markets than in labor markets in the last decades, and were predominantly implemented during the 1990s and 2000s.
Keywords:
WP; reform; product market; labor market; legislation; Regulation; Network Industries; Employment Protection; Unemployment insurance; product market reform; product market regulation; OECD indicator; reform database; regulation area; major reform; Commodity markets; Unemployment benefits; Labor market reforms; Labor markets; Southern Europe
Cover IMF Working Papers
Market Reforms at the Zero Lower Bound
Matteo Cacciatore
,
Mr. Romain A Duval
,
Giuseppe Fiori
, and
Mr. Fabio Ghironi
This paper studies the impact of product and labor market reforms when the economy faces major slack and a binding constraint on monetary policy easing. such as the zero lower bound. To this end, we build a two-country model with endogenous producer entry, labor market frictions, and nominal rigidities. We find that while the effect of market reforms depends on the cyclical conditions under which they are implemented, the zero lower bound itself does not appear to matter. In fact, when carried out in a recession, the impact of reforms is typically stronger when the zero lower bound is binding. The reason is that reforms are inflationary in our structural model (or they have no noticeable deflationary effects). Thus, contrary to the implications of reduced-form modeling of product and labor market reforms as exogenous reductions in price and wage markups, our analysis shows that there is no simple across-the-board relationship between market reforms and the behavior of real marginal costs. This significantly alters the consequences of the zero (or any effective) lower bound on policy rates.
Keywords:
WP; product market; Employment protection; Monetary policy; Producer entry; Product market regulation; Structural reforms; Unemployment benefits; Zero lower bound; product market deregulation; present discounted value; nominal interest rate; physical capital; product market reform; labor market dynamics; Consumption; Commodity markets; Labor productivity; Global
Cover IMF Working Papers
The Spanish Labor Market in a Cross-Country Perspective
Ms. Florence Jaumotte
The Spanish labor market is not working: the unemployment rate is structurally very high; wages are not very responsive to labor market conditions, causing a high cyclicality of unemployment; and the labor market is highly dual. Compared with the EU15, Spanish labor market institutions and policies stand out by the structure of its collective bargaining, which occurs mostly at an intermediate level, and by very high severance payments for permanent workers. Based on a quantitative analysis, the paper shows that moving away from the intermediate level of bargaining would go a long way toward bringing the unemployment rate closer to the EU15 average. The key reform needed to reduce the share of temporary workers is reducing employment protection of permanent workers. Substantially reforming the collective bargaining system and reducing the protection of permanent workers are likely to be highly complementary to secure a substantial reduction in the unemployment rate. The recent 2010 labor market reform attempts to address these issues, although its effects are still to materialize.
Keywords:
WP; labor market; share of temporary workers; equilibrium unemployment; wage agreement
Cover IMF Working Papers
Soft Budget Constraints, Firm Commitments and the Social Safety Net
International Monetary Fund
It is shown that the inefficiencies created by the “soft” budget constraint, enjoyed by enterprises in Eastern Europe and elsewhere, will continue so long as governments are unable credibly to threaten not to bail out loss-makers. Commitment to a “hard” budget constraint can best be achieved by the institution of a suitable social safety net. The burden on the social safety net can be reduced by the (endogenous) development of financial markets.
Keywords:
WP; constant returns to scale; present value; time horizon