Toxic Loans and the Rise of Populist Candidacies

78 Pages Posted: 9 Aug 2018 Last revised: 14 Nov 2020

See all articles by Emilie Sartre

Emilie Sartre

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Gianmarco Daniele

University of Milan - Faculty of Law; Bocconi University

Paul Vertier

affiliation not provided to SSRN

Date Written: November 13, 2020

Abstract

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

Sartre, Emilie and Daniele, Gianmarco and Vertier, Paul, Toxic Loans and the Rise of Populist Candidacies (November 13, 2020). Available at SSRN: https://ssrn.com/abstract=3209238 or http://dx.doi.org/10.2139/ssrn.3209238

Emilie Sartre

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Gianmarco Daniele

University of Milan - Faculty of Law ( email )

Via Festa del Perdono, 7
20122 Milano
Italy

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

Paul Vertier (Contact Author)

affiliation not provided to SSRN

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