TY  - JOUR
AU  - Mian,Atif R.
AU  - Sufi,Amir
AU  - Trebbi,Francesco
TI  - Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17831
PY  - 2012
Y2  - February 2012
UR  - http://www.nber.org/papers/w17831
L1  - http://www.nber.org/papers/w17831.pdf
N1  - Author contact info:
Atif R. Mian
Princeton University
Bendheim Center For Finance
26 Prospect Avenue
Princeton, NJ 08540
E-Mail: atif@princeton.edu

Amir Sufi
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-6148
Fax: 773/702-0458
E-Mail: amir.sufi@chicagobooth.edu

Francesco Trebbi
University of British Columbia
1873 East Mall
Vancouver, BC, V6T1Z1
Canada
Tel: 604.218.5900
Fax: 604.822.5915
E-Mail: ftrebbi@mail.ubc.ca
AB  - Debtors bear the brunt of a decline in asset prices associated with financial crises and policies aimed at partial debt relief may be warranted to boost growth in the midst of crises. Drawing on the US experience during the Great Recession of 2008-09 and historical evidence in a large panel of countries, we explore why the political system may fail to deliver such policies. We find that during the Great Recession creditors were able to use the political system more effectively to protect their interests through bailouts. More generally we show that politically countries become more polarized and fractionalized following financial crises. This results in legislative stalemate, making it less likely that crises lead to meaningful macroeconomic reforms.
ER  -