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Politicians, Trust and Financial Literacy: When Do Politicians Care?

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  • Donato Masciandaro

Abstract

Politicians can be more or less active in pursuing financial-literacy policies. This paper explores the role of financial-literacy policy in modifying the financial-trust endowment of a given population taking the political cost-benefit analysis into account. As, in any period, each incumbent government can design and implement its own financial-literacy policy and as financial-literacy deficits are more likely in a period of financial innovation, we assume that constituencies more or less in favour of such policies are present in a given country. If this is the case, we can show that, in a democracy with political competition, the level of activism in implementing financial-literacy policies is positively associated with financial-instability risks, literacy benefits, and illiteracy costs. Moreover, preferences and constraints motivate the politician in charge. More specifically, a more longer time horizons, lower psychological attitudes towards the status quo, and a higher probability of re-election can increase financial-literacy efforts.

Suggested Citation

  • Donato Masciandaro, 2023. "Politicians, Trust and Financial Literacy: When Do Politicians Care?," BAFFI CAREFIN Working Papers 23206, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp23206
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    Cited by:

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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)

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