Political Corruption and Household Finance

48 Pages Posted: 22 Apr 2019

See all articles by Di Bu

Di Bu

Macquarie University, Department of Applied Finance

Tobin Hanspal

WU Vienna University of Economics and Business

Yin Liao

Australian National University - The Centre for Applied Macroeconomic Analysis (CAMA); Macquarie University - Department of Applied Finance and Actuarial Studies

Date Written: March 28, 2019

Abstract

We study the effect of political corruption on household financial well-being using microdata from the United States and China. Our identification strategy exploits recent anti-corruption campaigns in China as exogenous shocks to the perceived level of corruption held by individuals. Households respond to reduced corruption by increasing stock market participation, financial risk taking, and overall financial development. These results can be explained partially by the direct costs of corruption on household societal wealth, and predominantly by the non-pecuniary effect on households' trust and perceptions of institutional quality. Our findings suggest that political corruption largely impedes household financial development.

Keywords: Corruption, Household finance, Cultural finance, Trust, Political institutions

JEL Classification: D03, D14, G11, G02, D81, D73

Suggested Citation

Bu, Di and Hanspal, Tobin and Liao, Yin and Liao, Yin, Political Corruption and Household Finance (March 28, 2019). Available at SSRN: https://ssrn.com/abstract=3361970 or http://dx.doi.org/10.2139/ssrn.3361970

Di Bu

Macquarie University, Department of Applied Finance ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Tobin Hanspal (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Yin Liao

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
United States

Australian National University - The Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Canberra, Australian Capital Territory 2601
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
92
Abstract Views
824
rank
346,430
PlumX Metrics