Toxic Loans and the Rise of Populist Candidacies
78 Pages Posted: 9 Aug 2018 Last revised: 14 Nov 2020
Date Written: November 13, 2020
The role of ﬁnancial crises in boosting populism has been well documented. Yet the speciﬁc mechanisms through which this occurs remain elusive. This paper studies how populist candidacies were fueled by a public ﬁnancial scandal, triggered by market volatility and ﬁnancial deregulation. Using an instrumental variable strategy, we exploit the leak of a list of French municipalities which contracted “toxic” loans prior to the crisis as a source of identiﬁcation. During the subsequent municipal elections, we show that i) populist parties were the main political parties experiencing an increase in vote share, while the incumbent’s political party was electorally punished, ii) both far-right and far-left populist candidacies were more likely in municipalities affected by the scandal, leading to a rise in electoral competition, iii) for the populist far-right, these results were stronger in economically fragile municipalities and in cities with a higher growth of the immigrant population. Importantly, the ﬁndings are not driven by the economic aftermath of the scandal and suggest that public ﬁnance mismanagement disclosure contributes by itself to the rise of populism during ﬁnancial crises.
Keywords: Populism, Financial crisis, Candidates, Extreme, Far right, Far left, Instrumental Variable Strategy, Municipalities, French elections
JEL Classification: P16, D72, P48, P43
Suggested Citation: Suggested Citation