Discussion paper

DP12430 Can Credit Rating Agencies Affect Election Outcomes?

We show that credit rating agency actions can have a significant effect on elections. We identify these effects by exploiting exogenous variation in municipal bond ratings due to Moody's recalibration of its scale in 2010. We find that incumbent politicians in upgraded municipalities experienced an increased likelihood of reelection and higher vote shares. Rating upgrades affect elections by improving voter perceptions of the quality of incumbents, and by producing wealth effects through voters' holdings of municipal bonds. We also establish a link between incumbents' reelection prospects and the improvements in economic conditions that are due to a debt-financed increase in government spending following rating upgrades.


Ferreira, M and R Silva (eds) (2017), “DP12430 Can Credit Rating Agencies Affect Election Outcomes?”, CEPR Press Discussion Paper No. 12430. https://cepr.org/publications/dp12430