Going to Extremes: Politics after Financial Crises, 1870-2014

By Manuel Funke, M. Schularick, Christoph Trebesch. Social Science Research Network, 2016

498 citations recorded by the source corpus.

Partisan conflict and policy uncertainty are frequently invoked as factors contributing to slow post-crisis recoveries. Recent events in Europe provide ample evidence that the political aftershocks of financial crises can be severe. In this paper we study the political fall-out from systemic financial crises over the past 140 years. We construct a new long-run dataset covering 20 advanced economies and more than 800 general elections. Our key finding is that policy uncertainty rises strongly after financial crises as government majorities shrink and polarization rises. After a crisis, voters seem to be particularly attracted to the political rhetoric of the extreme right, which often attributes blame to minorities or foreigners. On average, far-right parties increase their vote share by 30% after a financial crisis. Importantly, we do not observe similar political dynamics in normal recessions or after severe macroeconomic shocks that are not financial in nature.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2823cf3a6eac1c9019a63ab018dd70fb7b195615

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Citations in the corpus

The Trade Origins of Economic Nationalism: Import Competition and Voting Behavior in Western Europe (2018, result): “All this might generate an asymmetry between radical left and radical right in their appeal to globalization losers, akin to the one documented by Funke et al. (2016), who show how financial crises historically favor extreme-right platforms.”
Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-wing Populism (2020, unknown): “Funke et al. (2016) look at the electoral consequences of financial crises in 20 developed countries since 1870.”
Populist Leaders and the Economy (2020, methodology): “Our estimates of average treatment eﬀects are robust to using penalized synthetic control.”
The causes and consequences of household financial strain: A systematic review (2019, background): “Financial strain since the crisis has been associated with depression (Sweet et al., 2013), food insecurity (Balistreri, 2016), higher mortality (Karanikolos et al., 2013) and criminality (Monte, 2015) as well as recent political upheavals (Funke et al., 2016; Becker et al., 2017).”