Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273328 
Year of Publication: 
2023
Series/Report no.: 
DIW Discussion Papers No. 2042
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
This paper provides causal evidence on the effect of credit crunches on political polarization. We combine data on bank-firm connections and electoral outcomes at the city-level during the 2008-2014 Spanish Financial Crisis. First, we show that firms in a relationship with weak banks experience a reduction in their loan supply and employment growth. Next, we estimate the effects of unemployment on voting behaviour. We construct an instrument for unemployment based on the city-level exposure to foreign weak banks. We find that a one standard deviation increase in instrumented unemployment translates into a 7 percentage increase in the polarisation of voters.
Subjects: 
Polarization
Financial Crisis
Instrumental Variable Strategy
Spanish Elections
Credit Supply Shock
Real Effects
Unemployment Risk
JEL: 
G01
P16
D72
P43
Document Type: 
Working Paper

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