IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises

Author Info

  • Atif R. Mian
  • Amir Sufi
  • Francesco Trebbi

Abstract

Debtors bear the brunt of a decline in asset prices associated with financial crises and policies aimed at partial debt relief may be warranted to boost growth in the midst of crises. Drawing on the US experience during the Great Recession of 2008-09 and historical evidence in a large panel of countries, we explore why the political system may fail to deliver such policies. We find that during the Great Recession creditors were able to use the political system more effectively to protect their interests through bailouts. More generally we show that politically countries become more polarized and fractionalized following financial crises. This results in legislative stalemate, making it less likely that crises lead to meaningful macroeconomic reforms.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w17831.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17831.

as
in new window

Length:
Date of creation: Feb 2012
Date of revision:
Publication status: published as Atif Mian & Amir Sufi & Francesco Trebbi, 2014. "Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 1-28, April.
Handle: RePEc:nbr:nberwo:17831
Note: CF EFG POL
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.orgEmail:


More information through EDIRC

Keywords:

Other versions of this item:

Find related papers by JEL classification:
  • G01 - Financial Economics - - General - - - Financial Crises
  • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
  • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
  • H1 - Public Economics - - Structure and Scope of Government

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Òscar Jordà & Moritz HP. Schularick & Alan M. Taylor, 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," NBER Working Papers 17621, National Bureau of Economic Research, Inc.
  2. Veronica Guerrieri & Guido Lorenzoni, 2011. "Credit Crises, Precautionary Savings, and the Liquidity Trap," NBER Working Papers 17583, National Bureau of Economic Research, Inc.
  3. Alberto Alesina & Dorian Carloni & Giampaolo Lecce, 2012. "The Electoral Consequences of Large Fiscal Adjustments," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 531-570 National Bureau of Economic Research, Inc.
  4. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who adjusts and when? On the political economy of reforms," Harvard Institute of Economic Research Working Papers 2108, Harvard - Institute of Economic Research.
  5. Thomas Philippon & Virgiliu Midrigan, 2011. "Household Leverage and the Recession," 2011 Meeting Papers 261, Society for Economic Dynamics.
  6. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  7. Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the Fall," NBER Working Papers 16334, National Bureau of Economic Research, Inc.
  8. Atif Mian & Amir Sufi & Francesco Trebbi, 2010. "The Political Economy of the US Mortgage Default Crisis," American Economic Review, American Economic Association, vol. 100(5), pages 1967-98, December.
  9. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When?The Political Economy of Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1.
  10. Stephen Nunez, 2004. "Bankruptcy "Reform" in Congress: Creditors, Committees, Ideology, and Floor Voting in the Legislative Process," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(2), pages 527-557, October.
  11. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  12. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-57, June.
  13. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  14. Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
  15. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-20, December.
  16. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as in new window


Cited by:

  1. Jamie Bologna & Andrew T. Young, 2014. "Crises and Government: Some Empirical Evidence," Working Papers 14-36, Department of Economics, West Virginia University.
  2. David Lodge & Marta Rodriguez-Vives, 2013. "How long can austerity persist? The factors that sustain fiscal consolidations," European Journal of Government and Economics, Europa Grande, vol. 2(1), pages 5-24, June.
  3. repec:thk:rnotes:44 is not listed on IDEAS

This item is featured on the following reading lists or Wikipedia pages:

  1. Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises (AEJ:MA 2014) in ReplicationWiki

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17831. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.