Voters, Bailouts, and the Size of the Firm

Linda Schilling

MPRA Paper from University Library of Munich, Germany

Abstract: I present a political economic theory, explaining bailouts for failing firms in the presence of non-voters (foreigners). The governing politician uses the bailout as a tool to sway voters for maximizing re-election chances. Bailouts partially leak to foreigners at the firm and are also financed by tax-paying foreigners outside the firm. I show, larger failing firms are granted larger bailouts even if the additional size is due to having more foreign stakeholders (``too-big-to-fail- lookalike''). Yet, among equally sized firms, the firm with more voting-stakeholders receives the larger bailout, contradicting social optimality. Besides firm size, also voting rights cause bailouts.

Keywords: political finance; bailouts; economic voting; probabilistic voting; vote-share maximization; too-big-to-fail; socially optimal bailouts; partial suffrage (search for similar items in EconPapers)
JEL-codes: D72 G3 G32 G33 G35 G38 P16 (search for similar items in EconPapers)
Date: 2023-07-30
New Economics Papers: this item is included in nep-bec, nep-cdm, nep-cfn and nep-pol
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Related works:
Working Paper: Voters, Bailouts, and the Size of the Firm (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:118146

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