When Do Countries Implement Structural Reforms?

Abstract

This chapter’s objective is to investigate which factors—macroeconomic, policy-related, or institutional—foster the implementation of structural reforms. We therefore look at episodes of structural reforms over three decades across forty OECD and EU countries and link them to these factors. Our results suggest that structural reforms implementation is more likely during deep recessions and when unemployment rates are high. Moreover, the further it is distant from best practice, the more likely a country is to implement reforms. External pressures, such as being subject to a financial assistance programme, or being part of the European Single Market facilitated pro-competitive reforms. Low interest rates tend to promote rather than discourage structural reforms, while there seems no clear link between fiscal policy and reforms. Moreover, reforms in product markets tend to increase the likelihood of labour market reforms following suit. Many robustness checks have been carried out confirming our main results.