Institutional reforms that really matter: OECD institutional indicators vs. Dutch reform history.

1. Institutional reforms that really matter: OECD institutional indicators vs. Dutch reform history. Ruud Gerards, Manuel Müllers and Joan Muysken CofFEE-Europe Maastricht University, Department of Economics Presented by Ruud Gerards at AIAS 6 November 2008 http://www.ruudgerards.nl

2. Methodology Dutch reform history Econometric evidence Comparison with OECD indicators Conclusions Further research/refinement of research Outline

3. Dutch Miracle Dutch Disease Introduction • Objectives • Which reforms have had considerable impact? • Do OECD institutional indicators correctly pick up these reforms?

4. Our methodology builds on Stegeman 2005 (Netherlands bureau for economic policy analysis, CPB) In 1980-2003 there were too many reforms to test econometrically Qualitative analysis (literature research) gives us pre-selection of reforms Econometrics used to test the selection of reforms Methodology

5. Qualitative analysis Fondazione Rodolfo Debenedetti Social Reforms Database Brandt et al LABREF Labor Market Reforms Database OECD economics surveys Literature review Ranking Methodology

6. Dutch reform history

7. Reform areas Disability Sickness Unemployment ALMP EPL Reform instruments Level Responsibility Access Duration Stimuli Dutch reform history: Areas and instruments

8. Dutch reform history: Instruments

9. Dutch reform history: Impacts Figure 3. Reform impact ratios by area and instrument

10. Econometric evidence: Model • Two stage error correction model • Estimation period 1980-2003 • Reforms are represented by dummies • First stage (long run) equation: • Second stage (short run) equation:

11. Reforms represented by Dummies Effects of reforms implemented in subsequent years difficult to measure Hard to distinguish between the impacts of dummies that are close to each other in time To reduce density of dummies some dummies represent multiple reforms Econometric evidence: Dummies

12. Econometric evidence: Method

13. Econometric analysis confirms results from qualitative analysis Strong empirical evidence for the role of the business cycle Unemployment countercyclical Sickness and disability pro-cyclical Econometric evidence: Conclusions

14. Do OECD indicators correctly reflect our findings?

15. Do OECD indicators correctly reflect our findings?

16. Do OECD indicators correctly reflect our findings?

17. Disability and sickness hardly discussed in the OECD literature No OECD indicators for disability and sickness Indicators on EPL and unemployment benefit replacement rates perform not so well ALMP indicator performs reasonably well Do OECD indicators correctly reflect our findings?

18. Policy conclusions EPL and ALMP policy relatively unsuccessful Sickness, disability and unemployment reforms relatively successful Political business cycle influences reform timing OECD indicator conclusions OECD indicators do not perform that well, except ALMP indicator Sickness and disability not covered by OECD indicators Conclusions

19. We did not take into account tax-based reforms Regress all reform efforts at total number of claimants There is a certain amount of subjectivity in the ranking of reforms in the qualitative analysis Ideas for improvement?? Maybe count and analyse newspaper citations on these reforms? Possible selection bias? Yes maybe, but: econometrics used only to confirm results of qualitative analysis and this it does. Covariates would have become significant instead of the reforms Repeat this analysis for more countries Further research/refinement of research