Working Paper: CEPR ID: DP18313
Authors: Jos Mara Abad; Vicente Bermejo; Felipe Carozzi; Andrs Gago
Abstract: Borrowing from a lender of last resort reveals negative information about a government's past economic performance. This could make officials with previous government responsibilities more reluctant to request financial assistance. To study this, we analyze decisions made by 4,000 Spanish municipalities following a credit shock after the Great Recession. Regression-discontinuity estimates show newly elected executives are 30 percentage points more likely than re-elected incumbents to publicly agree on a financing program with the national government. Analyses of press coverage, news content using ChatGPT, and politicians' survey responses, indicate incumbents avoid the bailout to safeguard their image, despite this being suboptimal.
Keywords: bailout; IMF
JEL Codes: H63; F34; P43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reelected Incumbents (D72) | Reluctance to Disclose Negative Information (D80) |
| Government Turnover (J63) | Probability of Receiving Assistance from IMF (F35) |
| Government Turnover (J63) | Likelihood of Requesting Financial Assistance (I22) |
| Newly Elected Local Executives (H79) | Likelihood of Publicly Agreeing on Financing Program (H43) |