The political economy of TARP bank bailouts
Wen, Hua Jin
Thesis (M.P.P.)--Georgetown University, 2011.; Includes bibliographical references.; Text (Electronic thesis) in PDF format. This paper will investigate if there is a relationship between Troubled Asset Relief Program (TARP) funds allocated to banks, and the amount of campaign contributions those banks gave to congressmen. There already exists research on campaign contributions and its effects on increasing the probability of voting for a bailout, and there is research that there is a relationship between contributions to politicians and the amount subprime mortgages in each congressional district. In order to control for popular/electoral pressure, I include several socio-economic and financial variables. In addition, this paper will look at the outcome of these contributions and will study if the banks' contributions lead to a significant increase in probability of receiving bailout funds. I use a logit model with the primary independent variable as the proportion of campaign contributions to each congressman that was from the finance industry. The model will control for income growth, non performing assets, population, political party, inflation, median household income, a congressman not returning to office, and the importance of the financial sector in each congressional district. My findings indicate that campaign contributions and ideology have shaped voting incentives of Congressmen concerning the TARP fund while economic factors only mattered in the second house vote. Congressmen that have a higher percentage of their campaign contributions from finance are more likely to vote for TARP, and Republicans are less likely to vote for TARP. Magnitudes for these two variables decrease in the second house vote, and income growth is the only economic factor that is significant.
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