Betrayed by the Elites: How Corruption Amplifies the Political Effects of Recessions
IEB Working Paper N. 2020/02
63 Pages Posted: 21 Oct 2020
Date Written: July 9, 2020
We investigate whether corruption amplifies the political effects of economic crises. Using Spanish municipal-level data and a difference-in-difference strategy, we find that local unemployment shocks experienced during the Great Recession (2008-2015) increased political fragmentation. This effect was four times larger in municipalities exposed to malfeasance than in municipalities without a history of political corruption. We bolster this evidence by showing that, conditional on province and population-strata fixed effects, there is no evidence of differential pre-trends. We also find that the interaction of unemployment and corruption harms the two traditional main parties and benefits especially the new party on the left (Podemos).
Keywords: Accountability, Corruption, Political Fragmentation, Economic Crisis
JEL Classification: D72, D73, H12
Suggested Citation: Suggested Citation