Perotti: The Political Economy of Finance



This survey reviews how a recent political economy literature helps explain variation in governance, competition, funding composition and access to credit. Evolution in political institutions can account for financial evolution, and appears critical to explain rapid changes in financial structure, such as the Great Reversal in the early XX century, unlike time-invariant legal institutions or cultural traits. Future research should model the sources and consequences of financial instability, and to predict how major redistributive shocks will shape regulatory choices and financial governance.

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