Blaming Your Predecessor: Government Turnover and External Financial Assistance

Vicente Bermejo, Andres Gago, Felipe Carozzi and Abad, José María

No 18313, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Borrowing from a lender of last resort reveals negative information about a government's past economic performance. This could make officials with previous government responsibilities more reluctant to request financial assistance. To study this, we analyze decisions made by 4,000 Spanish municipalities following a credit shock after the Great Recession. Regression-discontinuity estimates show newly elected executives are 30 percentage points more likely than re-elected incumbents to publicly agree on a financing program with the national government. Analyses of press coverage, news content using ChatGPT, and politicians' survey responses, indicate incumbents avoid the bailout to safeguard their image, despite this being suboptimal.

JEL-codes: F34 H63 P43 (search for similar items in EconPapers)
Date: 2023-07
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