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The "Too Big To Fail" Subsidy in Banking Competition - Unfulfilled Electoral Promises: Evidence from Italian Municipalities

2 March 2016 at 12:00 PM - 1:30 PM

Room 104, Campus on Viale Romania, 32

Speaker: Annalaura Ianiro, Francesco Privitera, LUISS
  • Speaker: Annalaura Ianiro (LUISS)
  • Title: The “Too Big To Fail” Subsidy in Banking Competition
  • Abstract: After the last financial crisis, the phenomenon of Too Big To Fail (TBTF) financial institutions has gained relevance not only because of its implication for financial stability, but also because it is calling for a redefinition of the banking model and its relationship with competition issues and authorities. The aim of this work is to analyze the effect of the TBTF subsidy on the competition of the banking sector. Starting from Martinez-Miera and Repullo (2010), I develop a model with two banks, competing à la Bertrand over the bond market and the loan market. I consider a game where the first stage (bond market decision) acts as a capacity constraint for the second stage (loan market decision). I will present the general setting and some preliminary results.


  • Speaker: Francesco Privitera (LUISS)
  • Title: Unfulfilled Electoral Promises : Evidence from Italian Municipalities
  • Abstract: The current work exploits new data from Italian municipalities to analyse unfulfilled promises by incumbent mayors. Such promises are defined as the difference between planned expenditures put into the provisional budget and the actual amount spent and reported in the balance sheet, and constitute an additional channel through which incumbents can enhance their probability of re-election, in addition to the “electoral gifts”, i.e. actual spending increases in electoral years, on which the political budget cycle literature has previously focused.  Recent literature suggests that there is a cost of lying for politicians, implying that electoral promises are not mere cheap talk. Preliminary evidence hints that unfulfilled promises are not distributed uniformly across municipalities, but rather follow specific trends.