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From finance to fascism: The real effect of Germany’s 1931 banking crisis

Sebastian Doerr, Stefan Gissler, Jose-Luis Peydro () and Hans-Joachim Voth

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Do financial crises radicalize voters? We analyze a canonical case – Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.

Keywords: Financial crises; banking; Great Depression; democracy; anti-Semitism (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 N20 P16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-cfn, nep-his, nep-mac, nep-pke and nep-pol
Date: 2018-03, Revised 2019-03
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