Political Determinants of Government Loans in Japan
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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