Abstract

This chapter discusses politico‐economic complementarities, i.e. the fact that a given institution, when in place, may create political support for another one. If complementarities prevail, reform packages are more politically viable than isolated reforms. Complementarities are strong between institutions that create rents, such as wage rigidity, and institutions that protect rents, such as employment protection. On the other hand, if exposure effects dominate, there is no politico‐economic complementarity between rent‐creating, or rent‐protecting institutions and unemployment benefits. Finally, complementarities arise if competing groups set their own level of rigidity.