Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005



Table 2.

Probit estimates of the determinants of structural reforms over 1985-20031

(1)

(2)

(3)

(4)

Econometric method:

Probit

Random-effects probit

Probit

Random-effects probit

Dataset:

Aggregate

Aggregate

Stacked up

Stacked up

Dependent variable:

Binary reform index

Binary reform index

Binary reform index

Binary reform index

Unemployment (-3)

0.06 (m.p: 0.02)
[2.68]***

0.10

[1.97]**

0.03 (m.p: 0.01)
[3.01]***

0.08

[3.69]***

Crisis (-1)

0.95 (m.p: 0.36)
[2.90]***

1.19
[3.08]***

0.38 (m.p: 0.09)
[2.74]***

0.71

[3.29]***

Small country

0.62 (m.p: 0.23)
[3.98]***

0.64

[1.97]**

0.38 (m.p: 0.07)
[4.08]***

0.26

[1.31]

Cyclically-adjusted fiscal surplus (-1)

0.12 (m.p: 0.05)
[5.32]***

0.15

[3.69]***

0.07 (m.p: 0.01)
[5.30]***

0.11

[4.97]***

D(Cyclically-adjusted fiscal surplus (-1))

-0.11 (m.p: -0.04)
[1.96]**

-0.13

[2.01]**

-0.04 (m.p: -0.01)

[1.30]

-0.08

[1.95]*

Other reforms (-1)

0.2 (m.p: 0.04)
[4.02]***

0.27
[3.00]***

Observations__________________________

_________333________

_________333_________

________1655________

_________1655________

1. m.p: marginal probability.

Absolute value of robust z-statistics in parentheses, * significant at 10% level, ** significant at 5%, *** significant at 1%.

Source: Author's calculations.

Standard probit estimates such as those presented in column 1 of Table 2 purposefully
ignore the panel structure of the data. As a robustness check, in column 2 the equation is re-
estimated using a panel data, random-effects probit framework in which countries are considered
as different individuals. The results are virtually unaffected, except the unemployment variable
and the small country dummy which are now significant only at the 5% (instead of 1%)
confidence level.

Estimates on stacked up data (columns 3 and 4) use the same specifications97 as those on
aggregate data, except that they also control for the (lagged) effect of reforms made in other fields
on the propensity to implement a reform in a given field.
98 As already mentioned, this additional
control variable aims to capture positive spillovers between structural reforms in different areas.
The results are fairly comparable to those obtained on aggregate data, except that the fiscal
adjustment variable is not statistically significant at conventional levels in the standard probit
regression (column 3). In line with IMF (2004), reforms made in other fields are found to be

97.In principle, the use of stacked-up data also makes it possible to undertake the analysis of the determinants of structural reforms at the level of
each policy area. However, the scarcity of reforms in each field considered individually suggests - and estimates confirmed - that this is likely to
bring few robust findings.

98.For each of the five policy fields considered, this variable takes values comprised between 0 and 4 depending on the number of reforms carried
out in the other four fields.

195



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