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The Financial Drivers of Populism in Europe

Luigi Guiso, Massimo Morelli, Tommaso Sonno and Helios Herrera
Additional contact information
Massimo Morelli: Bocconi University, IGIER, PERICLES and CEPR
Helios Herrera: Warwick University and CEPR

No 2112, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: This paper argues that the financial crisis was a watershed in the burst of populism both on the demand side (voters behaviour) and on the supply side (political parties behaviour). On the demand side, we provide novel results on the causal effect of the financial crisis on trust, turnout and voting choices via its effects on voters economic insecurity. Economic insecurity peaks during the financial crisis and extends to segments of the population untouched by the globalization and robotization shocks. To establish causality, we use a pseudo-panel analysis and instrument the economic insecurity of different cohorts leveraging on a new methodology designed to highlight the different sensitivity to financial constraints for people in different occupations. On the supply side, we trace from manifestos the policy positions of old and new parties showing that the supply of populism had the largest jump right after the financial crisis. The size of the jump is largest in countries with low fiscal space and for parties on the left of the political spectrum. We provide a formal rationalization for the key role of fiscal space, showing how the pre-financial crisis shocks enter the picture as sources of a shrinking fiscal space.

Pages: 42 pages
Date: 2021, Revised 2021-09
New Economics Papers: this item is included in nep-cdm, nep-eec, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The Financial Drivers of Populism in Europe (2022) Downloads
Working Paper: The Financial Drivers of Populism in Europe (2021) Downloads
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