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The political economy of finance and regulatory capture: Evidence from the US Congress

Filippo Silano

No 72, ILE Working Paper Series from University of Hamburg, Institute of Law and Economics

Abstract: The 2007-08 Global Financial Crisis is a watershed phenomenon that reshaped global capitalism. Stemming from the argument that the Crisis was caused by deregulation, this article assesses to what extent the financial industry influenced the legislative process underlying these reforms. The hypothesis is that, during the deregulation process, the financial industry captured lawmakers' voting behaviour. Drawing on a logistic regression model, this study estimates to what extent 106th -109th Congress roll call votes on financial liberalisation were biased by industry-led campaign contributions and lobbying activities. The main finding shows that members of the US Congress recipient of funding from the financial sector were more prone to support deregulation. Providing systematic empirical evidence of capture, the results support the literature labelling the Crisis as the result of industry-induced deregulation.

Keywords: political economy; financial crisis; deregulation; capture; campaign finance; lobbying; US Congress; voting behaviour; logistic regression (search for similar items in EconPapers)
JEL-codes: G01 G18 K22 K23 P16 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cdm, nep-pke and nep-pol
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