Political Partisanship and the Transmission of Fiscal Policy-Peking University HSBC Business School(PHBS)

Political Partisanship and the Transmission of Fiscal Policy

2024-09-04 11:08:27

We document that support for the ruling party (“partisanship”) increases the take-up of government programs in which participation is costly. The take-up rates of a large-scale Indian loan-guarantee program for firm financing, Mudra loans, diverged across low- and high-partisanship electoral districts but only months after the widely-advertised program’s launch, once rulers and the media related take-up rates to party success. In loan-level administrative data, borrowing firms’ risk, interest rates, subsequent default rates, and access to bank branches did not vary with partisanship. Regular-loan issuance, which captures local firms’ demand and banks’ supply of credit, did not vary with partisanship either. The effects were larger in more contested districts.

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