Financial Crisis, Creditor-Debtor Conflict, and Populism

123 Pages Posted: 10 Jan 2019 Last revised: 14 Oct 2021

See all articles by Gyozo Gyongyosi

Gyozo Gyongyosi

Leibniz Institute for Financial Research SAFE; Kiel Institute for the World Economy

Emil Verner

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: October 13, 2021

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

Suggested Citation

Gyongyosi, Gyozo and Verner, Emil, Financial Crisis, Creditor-Debtor Conflict, and Populism (October 13, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3289741 or http://dx.doi.org/10.2139/ssrn.3289741

Gyozo Gyongyosi

Leibniz Institute for Financial Research SAFE ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

Kiel Institute for the World Economy ( email )

Kiellinie 66
Kiel, Schleswig-Hosltein 24105
Germany

Emil Verner (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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