rate (more pronounced for business sentiment) and the budgetary situation (only for consumer
sentiment). Signs are generally as expected.61 The results for the level of the government balance
in the consumer confidence regressions suggest that a solid fiscal situation stabilizes consumer
expectations.
There is no indication that reforms are associated with direct negative expectation effects. On the
contrary, tax reforms have a highly significant direct effect towards fostering optimism in the
business sector. Product market reforms miss the 10 per cent significance by a thin margin
(significance level is 0.107) in the business sentiment regression. The results underline the
findings from the reform cycle analysis that tax system and product market reforms are
characterized by a favourable time pattern of quickly materializing reform benefits. Results from
the inclusion of measures of overall reform intensity by calculating the sum of reform proxies
across policy fields are not reported: This variable (including a squared variant) was insignificant
and did not support the view that a big bang approach combining reforms over different fields at
the same time has a significantly more favourable expectation effect.
61 The results for the government balance are also plausible: A high level of the balance supports optimism whereas (not very robustly) an
improvement in the balance dampens consumer sentiment which could be associated with the negative impact of tax increases or expenditure
cuts on sentiment.
156
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