Lending Cycles and Real Outcomes: Costs of Political Misalignment

Abstract We document a strong political cycle in bank credit and industry outcomes Turkey. In line with theories of tactical redistribution, state-owned banks systematically adjust their lending around local elections compared private the same province based on electoral competition alignment incumbent mayors. This effect only exists corporate creates constraints for firms opposition areas, which suffer drops assets, employment sales but not firm entry. Financial resources factors production are misallocated as more efficient provinces industries greatest constraints, reducing aggregate productivity.