Timed well, growth-enhancing reforms are mostly electorally safe

In March 2025, economist and Munk School faculty Jonathan Ostry presented Deregulation and Election Outcomes at the G7 Finance and Central Bank Deputies' Symposium at the Bank of Canada in Ottawa. With opening remarks by Bank of Canada Governor Tiff Macklem and attended by central bank deputies and G7 deputies from international organizations such as the IMF and the OECD, Ostry surfaces critical questions.

Ostry advances the acute need to generate more economic growth in G7 nations. For decades, the traditional remedy for low growth was structural reform. His work asks two questions: Do reforms deliver more growth? And do reforms cost governments electorally?  He advocates for faster growth to contend with new realities, including geopolitical/geo-economic risks and fragmentation, as well as pre-existing challenges associated with the demographic transition and the green transition. These challenges require more fiscal space and more economic growth.

Governments must not delay, Ostry asserts. The growth benefits following reform are not immediate: they take time—a few years on average—to accrue. But dislocations as resources are reallocated in the economy are immediate and such dislocations create pockets of pain, especially for workers made redundant in declining sectors. This has implications for how to time reform along the electoral cycle. Reforms implemented early in an electoral term tend not to engender an electoral backlash and may even lead to electoral gains for the government. Aggregate economic gains are large enough while the short-term pain from reform is firmly in the rear-view mirror by the time governments need to face voters again.

Ostry addresses the electoral impacts of different types of structural reform, for example financial sector deregulation and real sector deregulation (removing barriers to internal and external trade). He finds the latter tend to be more electorally favorable than the former, likely because of the larger distributional effects (higher inequality) associated with past episodes of financial deregulation. In addition, Ostry finds that the business cycle affects the electoral impact of reform. It is much better electorally to deregulate when the economy is healthy overall than during a recession: fix the roof when the sun is shining, rather than when storms are raging.

Since the Global Financial Crisis more than a decade ago, momentum for reform has waned, in particular in G7 nations. Ostry raises the question of whether the diminished enthusiasm for reform is because reforms, as a remedy for low growth, do not deliver economic benefits as economists advertised, or because politicians now recognize that reforms are unpopular. As a result, governments are reluctant to implement reforms that may cost them electorally. His findings suggest that reforms do deliver economic benefits over the medium term and that, timed well over the electoral and business cycles, they can be electorally safe as well.

Ostry’s presentation included results from published research, co-authored with colleagues from the IMF, Harvard and Georgetown based on a new comprehensive dataset of market regulations in G7 and other countries. The research includes a comprehensive dataset on market regulations that covers internal and external barriers to trade and finance in a more granular and comprehensive manner than previous databases in the literature.