The Politics of the Paycheck Protection Program

Does partisanship influence loan allocation through the Paycheck Protection Program (PPP)? We examine the 2020 Presidential campaign contributions by lenders’ employees as a measure of partisanship and leverage the staggered rollout of the PPP under both Trump and Biden administrations to address this question. We find that partisan misalignment increases bank lending, particularly to small and first-time PPP borrowers, and those in Republican areas. This is consistent with Republican-leaning banks viewing the PPP’s 2021 phase as a legacy policy of the prior administration. Using county-level weekly unemployment insurance data, we also show that partisan misalignment is associated with higher PPP payroll coverage for small businesses. Our findings shed new light on the partisan-alignment phenomenon in finance. JEL classification codes: D72, G21, G28, G32, G38, H12, H81 Keywords: COVID-19, government aid program, lending, partisanship, Paycheck Protection Program, political polarization