Can credit rating agencies affect election outcomes?
Subject
Finance
Publishing details
Social Sciences Research Network
Publication Year
2016
Abstract
We show that credit rating agencies can have a significant effect on election outcomes. Specifically, we find that incumbent politicians in upgraded municipalities experience an increase in their vote shares and likelihood of winning. This incumbent effect is due to an expansion of local governments’ debt capacity that allows them to increase spending. The effects are stronger among Democratic incumbents. We identify these effects by exploiting the exogenous variation in municipal bond ratings due to Moody’s recalibration of its scale in 2010. The effects are consistent with good economic conditions and increases in wealth making voters more lenient toward the incumbent due to attribution errors and reduction in information asymmetry.
Keywords
Elections; Credit ratings; Financial constraints; Municipal bonds; Government spending; Economic conditions
Series
Social Sciences Research Network
Available on ECCH
No
