The last decades have been characterized by a global drive to reform finance, but the process has not been homogeneous across countries and over time. What can explain the observed differences in financial reform zeal? This paper investigates the role of government cohesiveness in explaining this heterogeneity, finding that fragmented governments breed stalemate. This phenomenon has often been assumed in the literature based on circumstantial observations, but a formal, systematic assessment was still lacking. We fill this gap by exploiting a panel dataset covering the OECD countries over 30 years and undertaking several robustness checks. Our results show that the number of parties and the presence of small, decisive coalition partners slow down financial reforms. This is consistent with theoretical models in which decision making requires cooperation among different agents with conflicting policy preferences.

Financial reform, Government fragmentation, Investor protection, Political economy
Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior (jel D72), Government Policy and Regulation (jel G18), Government Policy and Regulation (jel G38), Corporation and Securities Law (jel K22), Financial Markets; Saving and Capital Investment (jel O16)
dx.doi.org/10.1057/s41294-019-00108-w, hdl.handle.net/1765/121324
Comparative Economic Studies
Rotterdam School of Management (RSM), Erasmus University

Di Comite, F. (Francesco), & Lambert, T. (2019). Reforming Finance Under Fragmented Governments. Comparative Economic Studies. doi:10.1057/s41294-019-00108-w