The politics of bailouts: Estimating the causal effects of political connections on corporate bailouts during the 2008–2009 US financial crisis

Vuk Vukovic ()
Additional contact information
Vuk Vukovic: University of Oxford

Public Choice, 2021, vol. 189, issue 1, No 11, 213-238

Abstract: Abstract In 2008, as the financial crisis unfolded in the United States, the banking industry elevated its lobbying and campaign spending activities. By the end of 2008, and during 2009, the biggest political spenders, on average, received the largest bailout packages. Is that relationship causal? In this paper, I examine the effect of political connections on the allocation of funds from the Troubled Asset Relief Program (TARP) to the US financial services industry during the 2008–2009 financial crisis. I find that TARP recipients that lobbied the government, donated to political campaigns, or whose top executives had direct connections to politics received better bailout deals. I estimate regression discontinuity design and instrumental variable models to uncover how election outcomes for politicians in close races affected the distribution of bailout funds for connected firms. The results do not imply that some banks were deliberately favored over others, just that favored banks benefited because of their proximity to the right people in power. If being politically connected matters in general, in times of crisis it matters even more.

Keywords: Bailouts; Political connections; Lobbying; Campaign spending; US financial crisis; TARP; D72; H81; G01 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s11127-020-00871-w Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:pubcho:v:189:y:2021:i:1:d:10.1007_s11127-020-00871-w

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11127/PS2

DOI: 10.1007/s11127-020-00871-w

Access Statistics for this article

Public Choice is currently edited by WIlliam F. Shughart II

More articles in Public Choice from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().