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Are the loans of state-owned banks politically motivated?

Author

Listed:
  • Erik Figueiredo

    (Mauro Borges Institute (IMB))

  • João Ricardo Faria

    (Florida Atlantic University)

  • Jaime Orrillo

    (Catholic University of Brasilia)

  • Rodrigo Pereira

    (Institute of Applied Economic Research (Ipea))

Abstract

This paper investigates the relationship between annual disbursements of Brazil’s largest development bank, BNDES, and mayors political affiliation. We explore a set of Difference-in-Difference (DiD) designs to evaluate causal effects of policy interventions. Using data of Brazilian municipalities, we find that municipalities with mayors belonging to the coalition that supports the Federal government get higher disbursements than the ones with mayors that are out of the coalition. There is strong evidence that firms located in allied municipalities receive average higher loans. Our findings support the view that political bias may distort the credit allocation of state-owned banks.

Suggested Citation

  • Erik Figueiredo & João Ricardo Faria & Jaime Orrillo & Rodrigo Pereira, 2025. "Are the loans of state-owned banks politically motivated?," Empirical Economics, Springer, vol. 68(1), pages 405-432, January.
    • Handle: RePEc:spr:empeco:v:68:y:2025:i:1:d:10.1007_s00181-024-02636-6
    DOI: 10.1007/s00181-024-02636-6
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    More about this item

    Keywords

    State-owned banks; Political influences; Causal effects; Credit allocation;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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