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Comments on “Political Determinants of Government Loans in Japan”

Anil KashyapOctober 26, 2006

 JFI/WB Conference on Bank Regulation and Corporate Finance

Outline

1) A little on the pre-1994 Japanese electoral system

2) Implications for the theory

3) Interpretation

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Main results….

Prefectural loans made by government financial institutions (but not by private banks) are higher when:

1. LDP representatives have longer tenure

2. LDP candidates are vulnerable to defeat

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Shigeo Hirano: Do Individual Representatives Influence Government Transfers: Evidence From Japan

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Implications and questions raised by Hirano’s work

• Does the LDP or the individuals control the pork?– Party’s interests and individuals might diverge

• Is using the prefecture data OK?– Maybe all that matters is the longest serving member’s

clout?

• What about other types of pork? – local allocation tax and national treasury disbursements

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Thoughts on the regressions• Plenty of well-placed concern about reverse-causality

– Instruments (at the district level): parent was an elected official, is it an open seat (perhaps due to death)?

• Does including fixed effects make sense here?

• Is it obvious that contemporaneous pork is relevant for buying votes?

( Would like some help with the magnitudes, are they reasonable?)

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Some parting questions

• Can you dig down and figure out which agencies were most pliant?

• If the government loans were so bad, how did the private banks still lose so much money?

• What was the return to using this type of bribe to buy votes?