Fixing Market Failures or Fixing Elections? Agricultural Credit in India
Top Cited Papers
Open Access
- 1 January 2009
- journal article
- Published by American Economic Association in American Economic Journal: Applied Economics
- Vol. 1 (1) , 219-250
- https://doi.org/10.1257/app.1.1.219
Abstract
This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in nonelection years or in private bank lending. I show capture is costly: elections affect loan repayment, and election-year credit booms do not measurably affect agricultural output. (JEL D72, O13, O17, Q14, Q18)Keywords
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