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We use data on the universe of credit in Turkey to document a strong political lending cycle. State-owned banks systematically adjust their lending around local elections compared with private banks in the same province. There is considerable tactical redistribution: state-owned banks increase credit in politically competitive provinces which have an incumbent mayor aligned with the ruling party, but reduce it in similar provinces with an incumbent mayor from the opposition parties. This effect only exists in corporate lending as opposed to consumer loans, suggesting that tactical redistribution targets job creation to increase electoral success. Political lending influences real outcomes as credit-constrained opposition areas suffer drops in employment and firm sales. There is substantial misallocation of financial resources as credit constraints most affect provinces and industries with high initial efficiency.

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

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

We provide evidence that German savings banks - where local politicians are by law involved in their management - systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks - that are very similar to savings banks but lack their political connectedness - allow for clean identification of causal effects of county elections on savings banks' lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.

We provide causal evidence that German savings banks – where local politicians are by law involved in their management – systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks – that are very similar to savings banks but lack their political connectedness – allow for clean identification of causal effects of county elections on savings banks' lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.

We provide evidence that German savings banks - where local politicians are by law involved in their management - systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks - that are very similar to savings banks but lack their political connectedness - allow for clean identification of causal effects of county elections on savings banks' lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.

We provide evidence that German savings banks - where local politicians are by law involved in their management - systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks - that are very similar to savings banks but lack their political connectedness - allow for clean identification of causal effects of county elections on savings banks ́lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.

We provide causal evidence that German savings banks where local politicians are by law involved in their management systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks that are very similar to savings banks but lack their political connectedness allow for clean identification of causal effects of county elections on savings banks lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.