Political Economic Pressures in Financial Crisis Resolution

The free flow of global capital has been accompanied by destabilizing fi-nancial crises, coupled with significant redistributive effects. However, the existing literature has not adequately addressed the channels for this redistribution, nor the different factors that influence the formation of post-crisis redistributive policy. This paper develops a theoretical model that captures the influence of domestic special interest lobbying and in-ternational bilateral bargaining on the formation of equilibrium lending, bailout, and reallocation decisions. The paper then takes the theoretical model to the data, testing two key predictions of the model using both micro- and macro-level datasets. Finally, implications for international financial reform are examined in light of the model’s findings