Do partisan politics influence domestic credit?

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Tawiah, Vincent
Nadarajah, Sivathaasan
Alam, Md Samsul
Allen, Tom
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2023
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Abstract

Left-leaning and right-leaning governments hold opposing views on economic policy, resulting in disparities in economic behaviours and outcomes. Given this context, we explore the effect of political ideology on domestic credit using an unbalanced panel data of 29 countries from 1960 to 2014. Our empirical analysis shows that left-leaning governments reduce total domestic credit allocations. Also, we find that right-leaning governments provide more credit to the private sector, while left-leaning governments prefer to boost domestic credit to the public sector. In a further analysis, we show that political parties and their domestic credit strategies remain unchanged even during electoral periods. Our novel insights, that are robust to alternative measures, samples, and a set of econometric identifications, contribute to the literature on partisan politics and lending behaviour.

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Journal of Institutional Economics

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19

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1

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This article has been published in a revised form in Journal of Institutional Economics https://doi.org/10.1017/S1744137422000182. This version is published under a Creative Commons CC-BY-NC-ND licence. No commercial re-distribution or re-use allowed. Derivative works cannot be distributed. © The Author(s), 2022. Published by Cambridge University Press on behalf of Millennium Economics Ltd.

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Applied economics

Policy and administration

Social Sciences

Economics

Business & Economics

Domestic credit

lending behaviour

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Tawiah, V; Nadarajah, S; Alam, MS; Allen, T, Do partisan politics influence domestic credit?, Journal of Institutional Economics, 2023, 19 (1), pp. 137-158

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