Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322005 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
DIW Discussion Papers No. 2120
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
This paper provides causal evidence on the effect of credit crunches on political polarisation. Combining data on bank-firm connections and electoral outcomes at the city-level during the 2008-2014 Spanish financial crisis, I construct an instrument for unemployment based on the city-level exposure to (foreign) weak banks. I find that a 10% increase in (instrumented) local unemployment rates leads to radical parties gaining approximately one percentage point more in vote share relative to centrist parties. This suggests that credit contractions do not only impact firm performance and economic output, but also shape political polarisation through the channel of economic uncertainty.
Subjects: 
polarisation
Financial Crisis
Instrumental Variable Strategy
Spanish Elections
Credit Supply Shock
Real Effects
JEL: 
G01
P16
D72
P43
Document Type: 
Working Paper

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