Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises
Abstract
Countries become more politically polarized and fractionalized following financial crises, reducing the likelihood of major financial reforms precisely when they might have especially large benefits. The evidence from a large sample of countries provides strong support for the hypotheses that following a financial crisis, voters become more ideologically extreme and ruling coalitions become weaker, independently of whether they were initially in power. The evidence that increased polarization and weaker governments reduce the chances of financial reform and that financial crises lead to legislative gridlock and anemic reform is less clear-cut. The US debt overhang resolution is discussed as an illustration. (JEL D72, E32, E44, G01, H63)
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The causal linkages between economic shocks and sustained increases in partisanship remain poorly understood.
“The causal linkages between economic shocks and sustained increases in partisanship remain poorly understood, however.”
From Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure (2020) · cites this paper as Mian, Sufi, and Trebbi 2014
Mian, Sufi, and Trebbi (2014) finds that while congressional voting patterns become more polarized following financial crises, these movements are temporary.
“Mian, Sufi, and Trebbi (2014) finds that while congressional voting patterns become more polarized following financial crises, these movements are temporary.”
From Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure (2020) · cites this paper as Mian, Sufi, and Trebbi 2014
Cites
La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., & Vishny, R. W. (1998) · Journal of Political Economy · doi:10.1086/250042 · Cited by 18,025 · see citing works
Agency Costs, Net Worth, And Business Fluctuations
Bernanke, B., Gertler, M., Bernanke, B., & Gertler, M. (1988) · Unknown · doi:10.22004/ag.econ.292693 · Cited by 4,386 · see citing works
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Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure
Autor, D., Dorn, D., Hanson, G., & Majlesi, K. (2020) · American Economic Review · doi:10.1257/aer.20170011 · Cited by 1,063 · see citing works
- Authors
- Mian, A., Sufi, A., & Trebbi, F.
- Affiliations
- National Bureau of Economic Research (US)
- University of Chicago (US)
- Canadian Institute for Advanced Research (CA)
- ORCID
- Trebbi, Francesco
- Venue
- American Economic Journal: Macroeconomics
- Publisher
- American Economic Association
- Published
- 2014-04-01
- Volume
- 6
- Issue
- 2
- Pages
- 1-28
- ISSN
- 1945-7707 (ISSN-L)
- 1945-7715
- OpenAlex
- W2114689746
- Cited by
- 237
- References
- 2
- Citations by year
- 2026: 4 · 2025: 19 · 2024: 19 · 2023: 13 · 2022: 25 · 2021: 23 · 2020: 30 · 2019: 57 · 2018: 13 · 2017: 7 · 2016: 6 · 2015: 11 · 2014: 6 · 2013: 2 · 2012: 1
- FWCI
- 24.84
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- American Economic Journal Macroeconomics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Fiscal Policies and Political Economy
- Social Sciences › Economics, Econometrics and Finance › Finance › Global Financial Crisis and Policies
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Economic Theory and Policy
- Keywords
- debt overhang, political polarization, financial crisis, financial reform, ruling coalition, legislative gridlock, ideological extremism, US debt, fiscal policy
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