Political Accountability During Crises: Evidence from 40 Years of Financial Policies

Orkun Saka, Yuemei Ji () and Clement Minaudier

No 11461, CESifo Working Paper Series from CESifo

Abstract: We show that politicians facing a binding term limit are more likely to engage in financial de-liberalisation than those facing re-election, but only in the wake of a financial crisis. In particular, they implement policies that tend to favour incumbent financial institutions over the general population, such as increasing barriers to entry in the banking sector. We rationalise this behaviour with a theory of political accountability in which crises generate two opposite effects: they increase the salience of financial policies to voters but also create a window of opportunity for politicians captured by the financial industry to push potentially harmful reforms. In line with the implications of our model, we show that revolving doors between the government and the financial sector play a key role in encouraging bank-friendly policies after crises.

Keywords: financial crises; political accountability; democracies; term-limits; special-interest groups (search for similar items in EconPapers)
JEL-codes: D72 D78 G01 P11 P16 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cdm, nep-fdg, nep-fle, nep-his and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11461

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