Lending cycles and real outcomes: costs of political misalignment

Bircan, Çağatay and Saka, Orkun (2021) Lending cycles and real outcomes: costs of political misalignment. Systemic Risk Centre Discussion Papers (85). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

We use data on the universe of credit in Turkey to document a strong political lending cycle. State-owned banks systematically adjust their lending around local elections compared with private banks in the same province. There is considerable tactical redistribution: state-owned banks increase credit in politically competitive provinces which have an incumbent mayor aligned with the ruling party, but reduce it in similar provinces with an incumbent mayor from the opposition parties. This effect only exists in corporate lending as opposed to consumer loans, suggesting that tactical redistribution targets job creation to increase electoral success. Political lending influences real outcomes as credit constrained opposition areas suffer drops in employment and firm sales. There is substantial misallocation of financial resources as credit constraints most affect provinces and industries with high initial efficiency.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.systemicrisk.ac.uk/
Additional Information:	© 2021 The Authors
Divisions:	European Institute
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy; Administrative Processes in Public Organizations; Corruption P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
Date Deposited:	31 May 2023 10:09
Last Modified:	11 Dec 2024 19:45
URI:	http://eprints.lse.ac.uk/id/eprint/118902

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