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Do partisan politics influence domestic credit?

Published online by Cambridge University Press:  18 August 2022

Vincent Tawiah Open the ORCID record for Vincent Tawiah [Opens in a new window] ,
Sivathaasan Nadarajah ,
Md Samsul Alam  and
Tom Allen
Vincent Tawiah*
Affiliation:
DCU Business School, Dublin City University, Dublin, Ireland
Sivathaasan Nadarajah
Affiliation:
Department of Accounting, Finance and Economics, Griffith Business School, Griffith University, Brisbane, Australia
Md Samsul Alam
Affiliation:
Leicester Castle Business School, De Montfort University, Leicester, UK
Tom Allen
Affiliation:
Leicester Castle Business School, De Montfort University, Leicester, UK
*
*Corresponding author. Email: vincentkonadu@gmail.com
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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.

Keywords

Domestic creditlending behaviourpolitical ideologyprivate sector

JEL classification

G00: General G21: Banks • Depository Institutions • Micro Finance Institutions • Mortgages H3: Fiscal Policies and Behavior of Economic Agents G38: Government Policy and Regulation
Type
Research Article
Information
Journal of Institutional Economics , Volume 19 , Issue 1 , February 2023 , pp. 137 - 158
Copyright
Copyright © The Author(s), 2022. Published by Cambridge University Press on behalf of Millennium Economics Ltd.

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