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Manipulating Credit: Government Popularity as Driver of Credit Cycles

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  • Etienne Lepers

Abstract

This paper analyses the interaction between credit and political cycles, arguing that short-termist governments will seek to ride and amplify credit cycles for political gains. Specifically, it tests for the existence of political credit cycles not only before elections but throughout the term when executives seek to bolster support in periods of popularity drops. Compiling a unique database on government approval from opinion polls in 57 countries starting in 1980, it provides evidence that drops in popularity are systematically associated with larger future credit cycles, robust to a number of checks for confounding factors. Such credit manipulation appears to target credit to households specifically, is more prevalent in advanced, financialized, and indebted economies, and increases the likelihood of bad credit booms. Overall, this research points to the crucial importance of political cycles as drivers and sources of financial cycles and vulnerabilities.

Suggested Citation

  • Etienne Lepers, 2022. "Manipulating Credit: Government Popularity as Driver of Credit Cycles," Working Papers REM 2022/0239, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp02392022
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    credit booms; financial stability; political business cycle; government popularity; electoral cycles; credit subsidies; homeownership;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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