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The Political Economy of Financial Crisis Policy. Bruegel Working Paper 2015/06, July 2015

O'Keeffe, Micheal and Tierzi, Alessio (2015) The Political Economy of Financial Crisis Policy. Bruegel Working Paper 2015/06, July 2015. [Working Paper]

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    Abstract

    Highlights • Government intervention to stabilise financial systems in times of banking crises ultimately involves political decisions. This paper sheds light on how certain political variables influence policy choices during banking crises and hence have an impact on fiscal outlays. • We employ cross-country econometric evidence from all crisis episodes in the period 1970-2011 to examine the impact political and party systems have on the fiscal cost of financial sector intervention. • Governments in presidential systems are associated with lower fiscal costs of crisis management because they are less likely to use costly bank guarantees, thus reducing the exposure of the state to significant contingent and direct fiscal liabilities. Consistent with these findings we find further evidence that these governments are less likely to use bank recapitalisation and more likely to impose losses on depositors.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > fiscal policy
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on/reforms/economic governance
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Bruegel (Brussels) > Working Papers
    Depositing User: Unnamed user with email kms214@pitt.edu
    Official EU Document: No
    Language: English
    Date Deposited: 14 Jul 2015 08:33
    Number of Pages: 39
    Last Modified: 21 Jul 2015 12:58
    URI: http://aei.pitt.edu/id/eprint/65788

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