Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2024
  • Working Paper

Public Debt and Investment Under Political Competition: Evidence from Toxic Loans

By: Julien Sauvagnat and Boris Vallée
  • Format:Print
  • | Language:English
  • | Pages:45
ShareBar

Abstract

We examine how political considerations shape local government responses to a substantial rise in indebtedness. We use the delayed yet sharp deterioration of “toxic” loans held by French municipalities as a quasi-natural experiment to empirically investigate such phenomenon. Politically contested mayors reduce public investment significantly more in response to an increased debt burden compared to their less politically challenged counterparts. Consequently, the net increase in public debt is considerably more attenuated in politically contested municipalities. These results are consistent with a theoretical model of public investment, where electoral competition disciplines the budgetary decisions of local politicians, underscoring the political dimension of public indebtedness.

Keywords

Public Debt; Public Investments; Political Contestation; Toxic Loans; Borrowing and Debt; Investment; Public Sector; Government and Politics; Local Range; Financing and Loans

Citation

Sauvagnat, Julien, and Boris Vallée. "Public Debt and Investment Under Political Competition: Evidence from Toxic Loans." Working Paper, 2024.
  • Read Now

About The Author

Boris Vallee

Finance
→More Publications

More from the Authors

    • October 2024
    • Faculty Research

    ADU It Yourself: Unlocking Housing Potential in San Diego

    By: Boris Vallee, Alex Riolo and James Blume
    • August 2024
    • Review of Financial Studies

    The Labor Market Effects of Loan Guarantee Programs

    By: Jean-Noël Barrot, Thorsten Martin, Julien Sauvagnat and Boris Vallée
    • March 2024
    • Faculty Research

    Expanding the Bicester Collection to New York

    By: Boris Vallee
More from the Authors
  • ADU It Yourself: Unlocking Housing Potential in San Diego By: Boris Vallee, Alex Riolo and James Blume
  • The Labor Market Effects of Loan Guarantee Programs By: Jean-Noël Barrot, Thorsten Martin, Julien Sauvagnat and Boris Vallée
  • Expanding the Bicester Collection to New York By: Boris Vallee
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.