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Elections, special interests, and the fiscal costs of financial crisis

Author

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  • Keefer, Philip

Abstract

The author proposes a new approach to explain why the costs of crisis are greater in some countries than in others. He begins with the premise that many crises result from the willingness of politicians to cater to special interests, at the expense of broad social interests. A parsimonious model predicts that the less costly it is for average citizens to expel politicians, the more veto players there are; the less important are exogenous shocks, and the more difficult it is for politicians and special interests to forge credible agreements, the lower the costs of crisis are. Though these predictions differ from those in the literature, empirical evidence presented shows that they explain the fiscal costs of financial crisis, even after controlling for the financial sector policies believed to contribute most to the efficient prevention, and resolution of financial crisis.

Suggested Citation

  • Keefer, Philip, 2004. "Elections, special interests, and the fiscal costs of financial crisis," Policy Research Working Paper Series 3439, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3439
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Cesar Calderon & Alberto Chong, 2006. "Do Democracies Breed Rent-seeking Behavior?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(4), pages 247-260.
    2. César Calderón & Alberto Chong, 2005. "¿Fomentan las democracias conductas de procura de rentas?," Research Department Publications 4416, Inter-American Development Bank, Research Department.
    3. Feijen, Erik, 2005. "Do incumbents manipulate access to finance during banking crises?," Policy Research Working Paper Series 3660, The World Bank.

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