Publications
Publications
- 2024
Public Debt and Investment Under Political Competition: Evidence from Toxic Loans
By: Julien Sauvagnat and Boris Vallée
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.