further distinction is that between reforms that concern all agents in a given sector or only
particular groups. An example is that of labour market reforms extending to all labour market
participants as opposed to reforms addressed only to individuals entering the labour market for the
first time.
Reforms can be as seen as the outcome of a continuous effort to adapt market and government
institutions to changing fundamentals: technological progress, evolving needs of individuals and
the society, demography, etc. In spite of such a constant need of adapting institutions to
fundamental changes, the process of reform of a given sector of the economy is not always smooth
and gradual. Indeed, the reform process seems quite often characterized by jumps and
discontinuities: substantial policy changes are concentrated in few periods of time.10 Moreover,
when evaluated over sufficiently long periods of time, there is evidence that reforms in one
particular sector of the economy are quite often accompanied by reforms in other sectors. In
several advanced countries labour market, product market and tax reforms occurred broadly at the
same time (IMF, 2004).11 Finally, the international dimension seems to matter: reforms in a given
country are more likely if other countries have already carried out reforms in the same sector or are
in the process of doing it.12
One of the most salient features of economic reforms, which has attracted increasing attention by
academic and applied economists, is the considerable resistance that reforms could encounter in
the policy-making process. Several political economy arguments have been offered in the literature
10 For instance, in most advanced countries reforms in the banking sector were concentrated in the early
eighties, while the deregulation of air transportation was mostly achieved between the mid eighties and the early
nineties. A common thesis is that reforms tend to follow periods of crisis. See, e.g., Drazen (2000) for a discussion of
this thesis and for a survey on empirical evidence. The point here is not so much that reforms follows periods of
unsatisfactory economic performance (“the reform should follow crisis.. .is no more surprising than smoke following
fire” (Rodrik (1996, p. 27)). The thesis is rather that reforms are triggered only by periods of exceptionally bad
economic performance.
11 The fact that reforms in different sectors of the economy tend to occur together could be explained by
complementarity relations that often characterises reforms. For instance, a labour market reform aimed at increasing
the employment rate would be more effective if not acting exclusively on one aspect of the labour market legislation
(e.g., only on legislation concerning firing practices) but rather when considering several aspects at the same time
interrelated among them (e.g., both hiring and firing practices, unemployment benefits). Complementarities could
also concern reforms in different sectors of the economy. For instance, product market reforms that increase the
degree of contestability of sectors may trigger reforms in labour markets. The reduction in the extra-profits
associated with entry-barriers and anti-competitive practices could reduce the incentives by organized labour to
capture part of these rents, thereby leading to a higher probability of success for reforms aimed better aligning wages
to productivity. This argument has been put forward, for instance, by Blanchard and Giavazzi (1993).
12 The relevance of the international dimension for economic reforms could be due to several reasons, including
international agreements on reforming sectors for which cross-border spillovers are relevant (e.g., trade and trade-
related reforms as a result of WTO agreements) peer pressure within the context of regional arrangements (e.g.,
labour market reforms within the context of the EU open method of co-ordination), pressure to reform associated
with the direct spillovers from other countries’ reforms (e.g., as in the case of tax competition or deregulation of
particular industries) or learning spillovers occurring across the border.
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