Do partisan politics influence domestic credit?

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 201...

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Bibliographic Details
Published inJournal of institutional economics Vol. 19; no. 1; pp. 137 - 158
Main Authors Tawiah, Vincent, Nadarajah, Sivathaasan, Alam, Md Samsul, Allen, Tom
Format Journal Article
LanguageEnglish
Published Cambridge Cambridge University Press 01.02.2023
Subjects
Credit
Credit policy
Econometrics
Economic growth
Economic policy
Economic theory
Elections
Financial institutions
Financial services
GDP
Government
Gross Domestic Product
Ideology
Interest rates
Panel data
Partisanship
Political ideologies
Political parties
Private sector
Public sector
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Summary: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.
ISSN:1744-1374
1744-1382
DOI:10.1017/S1744137422000182