Elections, special interests, and the fiscal costs of financial crisis

Philip Keefer

No 3439, Policy Research Working Paper Series from The World Bank

Abstract: The author proposes a new approach to explain why the costs of crisis are greater in some countries than in others. He begins with the premise that many crises result from the willingness of politicians to cater to special interests, at the expense of broad social interests. A parsimonious model predicts that the less costly it is for average citizens to expel politicians, the more veto players there are; the less important are exogenous shocks, and the more difficult it is for politicians and special interests to forge credible agreements, the lower the costs of crisis are. Though these predictions differ from those in the literature, empirical evidence presented shows that they explain the fiscal costs of financial crisis, even after controlling for the financial sector policies believed to contribute most to the efficient prevention, and resolution of financial crisis.

Keywords: Banks&Banking Reform; Payment Systems&Infrastructure; Decentralization; Economic Theory&Research; National Governance; National Governance; Economic Theory&Research; Banks&Banking Reform; Financial Crisis Management&Restructuring; Financial Intermediation (search for similar items in EconPapers)
Date: 2004-10-01
New Economics Papers: this item is included in nep-cdm, nep-fin and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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