Buying the Vote? The Economics of Electoral Politics and Small Business Loans
61 Pages Posted: 12 Oct 2020 Last revised: 2 Jul 2021
Date Written: July 2, 2021
We study the effect of electoral politics on government small business lending, employment, and business formation. We construct novel measures of electoral importance capturing swing and base voters using data from Facebook ad spending, independent political expenditures, the Cook Political Report, and campaign contributions. We find that businesses in electorally important states, districts, and sectors receive more loans following the onset of the COVID-19 crisis, controlling for funding demand and both health and economic conditions. Estimates from survey and observational data show that electoral politics and the allocation of government funds affect employment, small business activity, and business applications. Data from political prediction markets show that the allocation of loans to electorally important states is associated with higher returns on shares betting that Donald Trump would win the election in those states.
Keywords: Employment, Government expenditures, Stimulus, Business applications, COVID-19
JEL Classification: G21, G28, G32, G38
Suggested Citation: Suggested Citation