The author proposes a new approach to explain why the costs of crisis are greater in some countries than in others. He begins with the premise that many crises result from the willingness of politicians to cater to special interests, at the expense of broad social interests. A parsimonious model predicts that the less costly it is for average citizens to expel politicians, the more veto players there are; the less important are exogenous shocks, and the more difficult it is for politicians and special interests to forge credible agreements, the lower the costs of crisis are. Though these predictions differ from those in the literature, empirical evidence presented shows that they explain the fiscal costs of financial crisis, even after controlling for the financial sector policies believed to contribute most to the efficient prevention, and resolution of financial crisis.
Details
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Author
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Document Date
2004/10/01
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Document Type
Policy Research Working Paper
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Report Number
WPS3439
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2010/07/01
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Doc Name
Elections, special interests, and the fiscal costs of financial crisis
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Keywords
special interest;united states house of representatives;fiscal cost;financial crisis;fiscal transfer;Check and Balances;liquidity support to bank;terms of trade shock;political instability;effect on policy outcome;deregulation of interest rate;support for deposit insurance;ceilings on interest rates;financial sector policy;current account balance;response to crisis;insolvent bank;government decision making;level of rent;financial sector liberalization;government decision makers;separation of power;government policy changes;financial sector crisis;lack of agreement;financial system restructuring;institutions and growth;Foreign Exchange Reserve;current account deficit;vulnerability to shock;development research group;interests of citizens;real interest rate;change cost;financial sector regulation;treatment of insolvent;international capital flow;effects of shocks;debt service payment;political decision maker;government spending plan;political variable;banking crisis;
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Citation
Keefer,Philip E.
Elections, special interests, and the fiscal costs of financial crisis (English). Policy, Research working paper ; no. WPS 3439 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/619871468761707609/Elections-special-interests-and-the-fiscal-costs-of-financial-crisis