Political Consequences of (Consumer) Debt Relief

Distributive politics plays an important role in democracies, but democratic legitimacy is undermined if distributive politics is perceived as vote buying. We study consumer debt relief as a tool of distributive politics and ask if debt relief can influence elections. A motivating example is the Biden administration's promise to relief US student debt. We utilize quasi-experimental variation generated by another very large debt relief program enacted in the Republic of Georgia that, similar to USA, affected every sixth voter. We estimate that the program helped the incumbent candidate win that election, and that its effects persisted into the next election. We show how economic power can translate into political power in democracies.