Financial policymaking after crises: public vs. private interests

Orkun Saka, Yuemei Ji () and Paul De Grauwe

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: What drives actual government policies after financial crises? In this paper, we first present a simple model of post-crisis policymaking driven by both public and private interests. Using the most comprehensive dataset available on de-facto financial liberalization over seven policy domains across 94 countries between 1973 and 2015, we then establish that financial crises can lead to more government intervention and a process of re-regulation in financial markets. Consistent with a demand channel from public (interests) to policymakers, we find that post-crisis interventions are common only in democratic countries. However, by using a plausibly exogenous political setting -i.e., term limits- muting policymakers' accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that promote their private interests. These privately-motivated interventions cannot be associated with immediate crisis response, operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

Keywords: financial crises; reform reversals; democracies; term-limits; special-interest groups (search for similar items in EconPapers)
JEL-codes: G00 G28 P11 P16 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2020-10-26
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http://eprints.lse.ac.uk/118861/ Open access version. (application/pdf)

Related works:
Working Paper: Financial Policymaking after Crises: Public vs. Private Interests (2021)
Working Paper: Financial policymaking after crises: Public vs. private interests (2021)
Working Paper: Financial Policymaking after Crises: Public vs. Private Interest (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118861

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