Annual Conference


Corporate Finance, Senior Fellows/Fellows


May 2023

Political Partisanship and the Transmission of Fiscal Policy

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, Mudra loans, diverge across low- and high-partisanship electoral districts but only months after the widelyadvertised program’s launch, once rulers relate take-up rates to party success. In loan-level administrative data, borrowers’ risk, interest rates, subsequent default rates, and access to bank branches do not vary with partisanship. Regular-loan issuance, which captures the local demand and supply of credit, does not vary with partisanship either. The effects are larger in contested districts.
Keywords: Heterogeneous Beliefs, Political Finance, Government Spending, Loans, Fiscal Policy, Government Prog
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