Lending cycles and real outcomes: costs of political misalignment

Çağatay Bircan and Orkun Saka

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

Abstract: We use data on the universe of credit in Turkey to document a strong political lending cycle. State-owned banks systematically adjust their lending around local elections compared with private banks in the same province. There is considerable tactical redistribution: state-owned banks increase credit in politically competitive provinces which have an incumbent mayor aligned with the ruling party, but reduce it in similar provinces with an incumbent mayor from the opposition parties. This effect only exists in corporate lending as opposed to consumer loans, suggesting that tactical redistribution targets job creation to increase electoral success. Political lending influences real outcomes as credit constrained opposition areas suffer drops in employment and firm sales. There is substantial misallocation of financial resources as credit constraints most affect provinces and industries with high initial efficiency.

Keywords: bank credit; electoral cycle; state-owned banks; misallocation (search for similar items in EconPapers)
JEL-codes: D72 D73 G21 P16 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2021-02-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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