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Political Determinants of Government Loans in Japan

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  • Masami Imai
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    Abstract

    This paper examines the political determinants of government banks' lending decisions using prefecture-level panel data on Japan's government loans from 1975 to 1992. It finds that the size of government loans is positively correlated with two political factors: (1) the electoral vulnerability of politicians who belong to the ruling Liberal Democratic Party (LDP) and (2) their seniority. These political effects are statistically robust to the inclusion of prefecture fixed effects, year fixed effects, and other socioeconomic factors and, more important, are present only in government loans, and not in private loans. These results suggest that self-interested LDP members (ab)used government loans for political purposes as implied by the "political view" of government banks. (c) 2009 by The University of Chicago. All rights reserved..

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 52 (2009)
    Issue (Month): 1 (02)
    Pages: 41-70

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    Handle: RePEc:ucp:jlawec:v:52:y:2009:i:1:p:41-70

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. Sawada, Michiru, 2013. "Measuring the effect of postal saving privatization on the Japanese banking industry: Evidence from the 2005 general election," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 967-983.
    2. Imai, Masami, 2012. "Local economic effects of a government-owned depository institution: Evidence from a natural experiment in Japan," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 1-22.
    3. Uwe Vollmer & Diemo Dietrich & Ralf bebenroth, 2009. "Behold the 'Behemoth'. The privatization of Japan Post Bank," Discussion Paper Series 236, Research Institute for Economics & Business Administration, Kobe University.

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