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Do Credit Rating Agencies Influence Elections?*

The economic effects of public financing: evidence from municipal bond ratings recalibration

Igor Cunha, Miguel A Ferreira and Rui C Silva

Review of Finance, 2022, vol. 26, issue 4, 937-969

Abstract: We show that credit rating agencies can influence political elections. We find that incumbent political parties experience an increase in their vote shares following municipal bond upgrades. The evidence is consistent with rating agencies affecting elections indirectly by expanding local governments’ debt capacity and directly through an impact on voters’ perceptions of the quality of incumbent politicians. To identify these effects, we examine election outcomes within neighboring counties by exploiting exogenous variation in municipal bond ratings due to Moody’s recalibration of its scale in 2010.

Keywords: Elections; Credit ratings; Financial constraints; Municipal bonds; Government spending; Economic conditions (search for similar items in EconPapers)
JEL-codes: D72 G24 H74 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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