-reform regime is represented in Figure 2 (see the Appendix for more details). The post-reform equilibrium level of the unified price p ˜ may or may not be located below the steady-state value of the parallel market price p * that prevails in the pre-reform regime, but it will be assumed that the condition p ˜ < p * holds. 15/ Similarly, there is no unambiguous relationship between d ˜ and d * . However, since the focus here is on a situation where agents may indeed be accumulating durable goods in the transition period between reform announcement and
uncertain about the opposition’s cost of opposing reform. Both these assumptions seem reasonable. 7 As a result, reform announcements can be costly, and common beliefs about the government’s commitment to reform determine whether a weak government announces reform, and in turn, whether the opposition chooses to protest against reform. Indeed, for a privately weak government, if perceptions about it’s commitment to reform are low enough, then it will be optimal for such a government to preserve the status quo rather than risk damaging protest. Conversely, if perceptions
electoral cycles by enabling us (i) to control for the influence of all economic and political factors on tax reforms at country level for a given year, and also (ii) to absorb the effects of common monthly shocks on reforms. Finally, our identification strategy relies on the fact that election dates are mostly predetermined relative to the announcement of tax reforms, i.e., it is unlikely that a tax reform announcement will lead to an election in the time window that we are considering in our analysis. 1 We find that governments tend to avoid announcing tax reforms