The Personal Wealth Interests of Politicians and Government Intervention in the Economy

48 Pages Posted: 14 Mar 2010 Last revised: 26 Aug 2013

Ahmed Tahoun

London Business School

Laurence van Lent

Tilburg University

Date Written: August 26, 2013

Abstract

We examine whether personal wealth interests affect politicians’ decisions about government intervention in the economy. We investigate this question in the context of the government’s support of financial institutions under the 2008 Emergency Economic Stabilization Act. We find that the personal wealth interests of politicians are positively associated with voting in favor of support for the financial sector, and, subsequently, with the amount and timing of the support that financial institutions receive. Our results hold using cautious estimates of wealth interests based on the value of the politician’s asset holdings in the financial sector and comprehensive estimates of changes in net wealth. Since a politician’s asset holdings and voting might both be determined by unobservable preferences for the financial sector, we use a source of exogenous variation in wealth interests, namely the returns on the spouse’s pension plan, to show that wealth interests rather than preferences explain our result.

Keywords: Financial Crisis, Politicians, Investments, Personal Wealth, Voting, Government Intervention

JEL Classification: D72, G11, G21, G22, G38

Suggested Citation

Tahoun, Ahmed and van Lent, Laurence, The Personal Wealth Interests of Politicians and Government Intervention in the Economy (August 26, 2013). Available at SSRN: https://ssrn.com/abstract=1570219 or http://dx.doi.org/10.2139/ssrn.1570219

Ahmed Tahoun

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Laurence Van Lent (Contact Author)

Tilburg University ( email )

Tilburg School of Economics and Management
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 4668288 (Phone)
+31 13 4668001 (Fax)

HOME PAGE: http://www.tilburguniversity.nl/people/vanlent

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