Reputation Credibility of Economic Policy Reputation Governments and states, like persons, acquire reputations that affect judgments about their likely behavior.
Economic policy can change in response to new insights, new experiences, and new goals.
However, a reputation for pursuing one type of economic policy can be a significant obstacle to establishing the credibility of a new type of policy. People often suspect that the heavy hand of history will reverse a new policy initiative in a government with a long-established reputation for pursuing a contrary policy. These public beliefs may have significant adverse economic consequences . Consider, for example, tax policy. A reputation for arbitrary and confiscatory tax policy discourages business development while a reputation for consistent and equitable taxes fosters business development.