The coecient for the interaction term of this regression with the condence bands are plotted in gure (4). The gure shows the evolution of the dierence between the eective tax rate for non-lobbying rms and lobbying rms. As with gure (3), we see that there is an increase in the dierence between the tax rate paid by lobbying rms and the non-lobbying rms during the crisis. This indicates that, in a statistical sense, lobbying rms had a decline in eective tax rates relative to non-lobbying rms.

# 3.3 Sectoral variation

In this section, I provide evidence that the increase in lobbying activity was mostly driven by a particular group of rms. In principal, it is not clear which type of rms should increase their lobbying activity during nancial crises. Previous work by Rajan and Zingales (1998) has shown that there are sectors that are more sensitive to variations in the supply of credit due to the reliance on external nance. It is natural to think that these sectors (and rms) would be more aected during a credit crunch and therefore would try to disproportionately inuence the government to obtain tax benets. To study this hypothesis I look at the lobbying expenditure of all rms in sectors that depend more on external nance as a share of total lobbying expenditure, focusing on taxation. I nd that those rms tend to lobby more, both in the cross section and over time. Additionally, these rms increased their lobbying activity the most during the recent crisis. Figure (5) illustrates these two facts. The participation in total lobbying expenditure for taxation of the industries that rely more on external nance went from 53 % at the bottom of 2007 to 63% at the peak of the time period, and coinciding with the crisis. Consistent with the fact that lobbying reduces the tax obligation, gure (6) shows the eective tax rates as a function of the Rajan and Zingales measure of nancial dependence. The gure reveals that sectors that are more capital intensive and exert more lobbying tend to have a lower tax rate.

The evidence provided in these graphs, in principle, supports the original hypothesis: sectors and rms that are in more trouble tend to lobby more the government to try to obtain preferential tax treatment. However, it is not clear ex ante whether large or small rms were responsible for the increase in lobbying during the crisis. On one hand, small rms are more likely to be aected by monetary or nancial shocks, especially in those sectors that depend more on external nance.<sup>21</sup> Following this argument, we should observe that these rms increased lobbying activity. On the other hand, large rms may have the necessary political connections or resources to spare during a crisis (Faccio (2006) and Faccio et al. (2006)). In the next section, I study this issue more closely.

> 21Gertler and Gilchrist (1994) nd that the growth in sales, inventories, and bank debt of small manufacturing rms are more aected by monetary shocks. Sharpe (1994) found that small rms have a disproportional response, relative to large rms, to nancial shocks. Using CPS data Duygan-Bump et al. (2015) nd that the 2007-2009 credit shock increased the probability of going to the unemployment pool for workers in small rms in sectors that depend more on external nance.

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