Template-Type: ReDIF-Paper 1.0
Author-Name: Gago Andrés
Author-Name-First: Andrés
Author-Name-Last: Gago
Author-Name: Carozzi Felipe
Author-Name-First: Felipe
Author-Name-Last: Carozzi
Author-Name: Bermejo Vicente J.
Author-Name-First: Vicente J.
Author-Name-Last: Bermejo
Author-Name: Abad Jose M.
Author-Name-First: Jose M.
Author-Name-Last: Abad
Title: Government Turnover and External Financial Assistance
Abstract: We study the political incentives shaping governments' decisions to seek assistance from a lender of last resort. We propose that re-elected incumbents are more reluctant than newly elected governments to request assistance, as this action reveals negative information about their past performance. We first provide cross-country descriptive evidence that a change in office is indeed associated with a larger probability of receiving assistance from the IMF. Next, to obtain causal evidence, we analyze the decisions made by 4,000 Spanish municipalities following a credit shock during the Great Recession. Regression-discontinuity estimates show that newly elected local executives were approximately 30 percentage points more likely than re-elected incumbents to publicly agree on a financing program with the national government. Using data from press reports, electoral results and a survey on politicians' views, we show that many re-elected incumbents avoided requesting a public bailout to protect their image, even though this decision was financially suboptimal.
Length:  64 pages
Creation-Date:  2023-11
File-URL: https://aaep.org.ar/works/works2023/4655.pdf
File-Format: Application/pdf
Number: 4655
Classification-JEL: H63, F34
Handle: RePEc:aep:anales:4655