Betrayed by the Elites: How Corruption Amplifies the Political Effects of Recessions

IEB Working Paper N. 2020/02

63 Pages Posted: 21 Oct 2020

See all articles by Carlos Sanz

Carlos Sanz

Banco de España

Albert Sole-Olle

University of Barcelona; CESifo (Center for Economic Studies and Ifo Institute)

Pilar Sorribas-Navarro

University of Barcelona - Faculty of Economic Science and Business Studies

Date Written: July 9, 2020

Abstract

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

Sanz, Carlos and Sole-Olle, Albert and Sorribas-Navarro, Pilar, Betrayed by the Elites: How Corruption Amplifies the Political Effects of Recessions (July 9, 2020). IEB Working Paper N. 2020/02, Available at SSRN: https://ssrn.com/abstract=3685823 or http://dx.doi.org/10.2139/ssrn.3685823

Carlos Sanz

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Albert Sole-Olle

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Pilar Sorribas-Navarro (Contact Author)

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Barcelona
Spain

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