Working Paper: CEPR ID: DP15508
Authors: Linda Marlene Schilling
Abstract: A failing firm employs domestic and foreign stakeholders. The latter have no voting rights. A politician decides on the vote-share maximizing bailout. In a probabilistic voting model, I analyze whether foreign stakeholders impact bailouts.Stakeholder voters shade their vote to reward the politician, while non-stakeholder voters punish the politician for imposing bailout-financing taxes. If foreign stakeholders neither pay taxes nor receive bailouts (seasonal workers), only voters at the firm level matter. Firms with equally large stakeholder groups receive distinct bailouts in equilibrium, depending on their voter-concentration among stakeholders. If foreigners pay taxes and receive bailouts (greencard holders), they impact the electorate and thus bailouts through monetary transfers despite their lack of voting rights. Then adding foreigners can both increase or decrease bailouts.The measure of all firm stakeholders remains insufficient to determine bailouts. In either case, vote-share maximizing bailouts equal socially optimal bailouts only if all stakeholders are domestic.
Keywords: bailouts; political economy; economic voting; probabilistic voting; voteshare maximization; toobigtofail; labor migration; socially optimal bailouts
JEL Codes: G3; P16; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of foreign stakeholders (F23) | more straightforward political calculus for the politician (D72) |
| foreign stakeholders included in tax system but lack voting rights (F38) | alter electorate's dynamics (D72) |
| foreign stakeholders presence (F23) | bailouts (H81) |
| all stakeholders are domestic (F23) | voteshare maximizing bailouts = socially optimal bailouts (D72) |