Can Reform Waves Turn the Tide? Some Case Studies using the Synthetic Control Method

Abstract

A number of advanced economies carried out a sequence of extensive reforms of their labor and product markets in the 1990s and early 2000s. Using the Synthetic Control Method (SCM), this paper implements six case studies of well-known waves of reforms, those of New Zealand, Australia, Denmark, Ireland and Netherlands in the 1990s, and the labor market reforms in Germany in the early 2000s. In four of the six cases, GDP per capita was higher than in the control group as a result of the reforms. No difference between the treated country and its synthetic counterpart could be found in the cases of Denmark and New Zealand, which in the latter case may have partly reflected the implementation of reforms under particularly weak macroeconomic conditions. Overall, also factoring in the limitations of the SCM in this context, the results are suggestive of a positive but heterogenous effect of reform waves on GDP per capita. JEL Classification Numbers: E02, J08, O40, O43.

Does a Value‐added Tax Increase Economic Efficiency?

“…I use the normalized RMSPE called the pretreatment fit index to assess the overall quality of the pretreatment fit. A pretreatment fit index of X implies that the fit of the path of the outcome variable of treated country and its synthetic control is equal to that created by a 100 X percent deviation of outcome variable on each pretreatment period (Adhikari et al ; Adhikari and Alm )…”

“…I use the normalized RMSPE called the pretreatment fit index to assess the overall quality of the pretreatment fit. A pretreatment fit index of X implies that the fit of the path of the outcome variable of treated country and its synthetic control is equal to that created by a 100X percent deviation of outcome variable on each pretreatment period (Adhikari et al 2018;Adhikari and Alm 2016). 11 Next, I follow Cavallo et al (2013) and aggregate the country-specific treatment effects into four groups based on income classification of the country during the year of VAT adoption.…”

Openness and Structural Labor Market Reforms: Ex Ante Counterfactuals

“…In other words, we ran the regression on the industry level extensive margin on the same variables as in the original global VAR (GVAR) (just note that the frequency of series is annual as the 17. Adhikari et al (2016) use the synthetic control method and thus implicitly assume that similar institutions are crucial for similar responses to reforms (by selecting a donor country group from advanced economies only and by controlling for such variables as democracy, trade openness and populatoin growth). Making use of 30 years of evidence on structural reforms across the OECD countries, Bouis et al (2012) find that institutional context and macroeconomic policies are crucial in shaping the dynamic impact of structural reforms.…”

Greece: 2018 Article IV Consultation and Proposal for Post-Program Monitoring-Press Release; Staff Report; and Statement by the Executive Director for Greece

“…• Adhikari et al (2016) looks at case studies of major past reformers in both labor and product markets-Australia, Denmark, Ireland, Netherlands, and New Zealand in the 1990s, Germany in the 2000s-and finds that the GDP effect of reforms ranged between 0 and 34 percent over a period of 5 years. Excluding Ireland, which is a clear outlier, the average impact was 0.6 percentage points per year over the five-year period, and in two out of six cases, there were no significant gains.…”