Financial Crisis, Creditor-Debtor Conflict, and Populism

Abstract

We study the impact of debtor distress on support for a populist far-right political party during a financial crisis. Our empirical approach exploits variation in exposure to foreign currency household loans during a currency crisis in Hungary. Foreign currency debt exposure leads to a large and persistent increase in support for the populist far right. We present evidence that the far right advocated for foreign currency debtors' interests by proposing aggressive debt relief and was rewarded with support from these voters. Our findings are consistent with theories emphasizing that conflict between creditors and debtors can shape political outcomes after financial crises.

Keywords: populism, far-right parties, financial crisis, household debt, foreign currency debt

JEL Classification: D10, D72, E44, F34, G01