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The Politics of the Paycheck Protection Program

Author

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  • Igan, Deniz
  • Lambert, Thomas
  • Zhang, Eden Quxian
  • Mishra, Prachi

Abstract

Does partisanship influence loan allocation through the Paycheck Protection Program (PPP)? We examine the 2020 Presidential campaign contributions by lenders’ employees as a measure of partisanship and leverage the staggered rollout of the PPP under two different administrations to address this question. We find that partisan misalignment increases bank lending, particularly to small and first-time PPP borrowers, and those in Republican areas. This is consistent with Republican-leaning banks viewing the PPP’s 2021 phase as a legacy policy of the prior administration. Using county-level weekly unemployment insurance data, we also show that partisan misalignment is associated with higher PPP payroll coverage for small businesses. Our findings shed new light on the partisan-alignment phenomenon in finance.

Suggested Citation

  • Igan, Deniz & Lambert, Thomas & Zhang, Eden Quxian & Mishra, Prachi, 2021. "The Politics of the Paycheck Protection Program," CEPR Discussion Papers 16842, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16842
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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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