Discussion paper
DP18313 Blaming Your Predecessor: Government Turnover and External Financial Assistance
Borrowing from a lender of last resort reveals negative information about a government's past economic performance. This could make officials with previous government responsibilities more reluctant to request financial assistance. To study this, we analyze decisions made by 4,000 Spanish municipalities following a credit shock after the Great Recession. Regression-discontinuity estimates show newly elected executives are 30 percentage points more likely than re-elected incumbents to publicly agree on a financing program with the national government. Analyses of press coverage, news content using ChatGPT, and politicians' survey responses, indicate incumbents avoid the bailout to safeguard their image, despite this being suboptimal.
£6.00
