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The politics of bailouts: Estimating the causal effects of political connections on corporate bailouts during the 2008-2009 US financial crisis.

ABSTRACT: In 2008, as the financial crisis unfolded in the United States, the banking industry elevated its lobbying and campaign spending activities. By the end of 2008, and during 2009, the biggest political spenders, on average, received the largest bailout packages. Is that relationship causal? In this paper, I examine the effect of political connections on the allocation of funds from the Troubled Asset Relief Program (TARP) to the US financial services industry during the 2008-2009 financial crisis. I find that TARP recipients that lobbied the government, donated to political campaigns, or whose top executives had direct connections to politics received better bailout deals. I estimate regression discontinuity design and instrumental variable models to uncover how election outcomes for politicians in close races affected the distribution of bailout funds for connected firms. The results do not imply that some banks were deliberately favored over others, just that favored banks benefited because of their proximity to the right people in power. If being politically connected matters in general, in times of crisis it matters even more.

Supplementary information

The online version contains supplementary material available at 10.1007/s11127-020-00871-w.

SUBMITTER: Vukovic V

PROVIDER: S-EPMC7865106 | biostudies-literature | 2021 Feb

REPOSITORIES: biostudies-literature

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The politics of bailouts: Estimating the causal effects of political connections on corporate bailouts during the 2008-2009 US financial crisis.

Vukovic Vuk V

Public choice 20210206 1-2

In 2008, as the financial crisis unfolded in the United States, the banking industry elevated its lobbying and campaign spending activities. By the end of 2008, and during 2009, the biggest political spenders, on average, received the largest bailout packages. Is that relationship causal? In this paper, I examine the effect of political connections on the allocation of funds from the Troubled Asset Relief Program (TARP) to the US financial services industry during the 2008-2009 financial crisis. ...[more]

PMID: 33583964

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Project description:BackgroundThe Framework Convention of Tobacco Control (FCTC) provides a basis for nation states to limit the political effects of tobacco industry philanthropy, yet progress in this area is limited. This paper aims to integrate the findings of previous studies on tobacco industry philanthropy with a new analysis of British American Tobacco's (BAT) record of charitable giving to develop a general model of corporate political philanthropy that can be used to facilitate implementation of the FCTC.MethodAnalysis of previously confidential industry documents, BAT social and stakeholder dialogue reports, and existing tobacco industry document studies on philanthropy.ResultsThe analysis identified six broad ways in which tobacco companies have used philanthropy politically: developing constituencies to build support for policy positions and generate third party advocacy; weakening opposing political constituencies; facilitating access and building relationships with policymakers; creating direct leverage with policymakers by providing financial subsidies to specific projects; enhancing the donor's status as a source of credible information; and shaping the tobacco control agenda by shifting thinking on the importance of regulating the market environment for tobacco and the relative risks of smoking for population health. Contemporary BAT social and stakeholder reports contain numerous examples of charitable donations that are likely to be designed to shape the tobacco control agenda, secure access and build constituencies.Conclusions and recommendationsTobacco companies' political use of charitable donations underlines the need for tobacco industry philanthropy to be restricted via full implementation of Articles 5.3 and 13 of the FCTC. The model of tobacco industry philanthropy developed in this study can be used by public health advocates to press for implementation of the FCTC and provides a basis for analysing the political effects of charitable giving in other industry sectors which have an impact on public health such as alcohol and food.

Project description:BackgroundRecent studies show corporate political activity (CPA) can have detrimental impacts on health policy processes. The Control of Marketing Promotion of Infant and Young Child Food Act B.E. 2560 (the Act) was implemented in Thailand in 2017, but there have been no studies documenting CPA during its policy processes. Furthermore, the effects of CPA on the Act and how non-industry stakeholders dealt with the CPA have not been explored. This study aimed to analyze the CPA of baby food companies in Thailand, its effects on the Act, and how policymakers have responded to CPA around the Act.MethodsThis qualitative study applied an established framework developed by Mialon and colleagues to collect and systematically analyze publicly available information from seven baby food companies with the highest percentage market share in Thailand. In-depth interviews were also used to explore how people involved in the policy process of the Act experienced the CPA of baby food companies, the consequent effects on the Act, and how they responded to the CPA.ResultsDuring development of the Act, baby food companies used two main strategies, 'information and messaging' and 'constituency building'. We found the companies met policymakers, and they employed evidence or provided information that was favorable to companies. Also, they established relationships with policymakers, health organizations, communities and media. The effects of CPA were that the scope of products controlled by the Act was reduced, and CPA led relevant people to misunderstand and have concerns about the Act. Officials and others countered the influence of CPA by raising awareness and building understanding among involved people, as well as avoiding contact with companies informally.ConclusionsCPA consists of a variety of practices that resulted in a weakened Act in Thailand. Government officials and other non-industry stakeholders employed strategies to counteract this influence. This study suggests the Department of Health, and other relevant government agencies, would benefit from establishing safeguards and protections against CPA. Efforts to raise awareness about the harms of CPA within and outside of government and establish a systematic monitoring system, including avoid conflict of interest in policy process would improve policymaking and implementation of the Act.

Dataset Information

The politics of bailouts: Estimating the causal effects of political connections on corporate bailouts during the 2008-2009 US financial crisis.

Supplementary information

Publications

The politics of bailouts: Estimating the causal effects of political connections on corporate bailouts during the 2008-2009 US financial crisis.

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