Voters, Bailouts, and the Size of the Firm
Confronted with a failing firm, a politician sets a bailout to maximize his reelection chances. The voters among the firm’s stakeholders reward him for the bailout, while the remaining voters punish him in the elections since they finance the bailout via taxes. The firm also employs non-voting foreign stakeholders. I study how vote-share maximizing bailouts are driven by the firm’s size as opposed to the share of voters among the firm’s stakeholders. The share of voters at the firm level is a confounding variable, driving both firm size and bailouts. Employing more foreign workers increases bailouts if foreigners pay taxes.