Personal Wealth Interests of Politicians and Government Intervention in the Economy: The Bailout of the US Financial Sector

We examine whether personal wealth interests affect politicians’ decisions about government intervention in the economy. We investigate this question in the context of the government’s support of financial institutions under the 2008 Emergency Economic Stabilization Act. We find that the personal wealth interests of politicians are positively associated with voting in favor of support for the financial sector, and, subsequently, with the amount and timing of the support that financial institutions receive. Our results hold using cautious estimates of wealth interests based on the value of the politician’s asset holdings in the financial sector and comprehensive estimates of changes in net wealth. Since a politician’s asset holdings and voting might both be determined by unobservable preferences for the financial sector, we use a source of exogenous variation in wealth interests, namely the returns on the spouse’s pension plan, to show that wealth interests rather than preferences explain our result.