The Financial Drivers of Populism in Europe

43 Pages Posted: 14 Sep 2021

See all articles by Luigi Guiso

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF); Einaudi Institute for Economics and Finance

Massimo Morelli

Bocconi University

Tommaso Sonno

University of Bologna

Helios Herrera

University of Warwick

Date Written: September 1, 2021

Abstract

This paper argues that the financial crisis was a watershed in the burst of populism both on the demand side (voters behaviour) and on the supply side (political parties behaviour). On the demand side, we provide novel results on the causal effect of the financial crisis on trust, turnout and voting choices via its effects on voters economic insecurity. Economic insecurity peaks during the financial crisis and extends to segments of the population untouched by the globalization and robotization shocks. To establish causality, we use a pseudo-panel analysis and instrument the economic insecurity of different cohorts leveraging on a new methodology designed to highlight the different sensitivity to financial constraints for people in different occupations. On the supply side, we trace from manifestos the policy positions of old and new parties showing that the supply of populism had the largest jump right after the financial crisis. The size of the jump is largest in countries with low fiscal space and for parties on the left of the political spectrum. We provide a formal rationalization for the key role of fiscal space, showing how the pre-financial crisis shocks enter the picture as sources of a shrinking fiscal space.

Keywords: Demand and Supply of Populism, Financial Crisis, Fiscal Space, Age-Earning Profiles

JEL Classification: D72, D78, D14, H30

Suggested Citation

Guiso, Luigi and Guiso, Luigi and Morelli, Massimo and Sonno, Tommaso and Herrera, Helios, The Financial Drivers of Populism in Europe (September 1, 2021). BAFFI CAREFIN Centre Research Paper No. 2021-166, Available at SSRN: https://ssrn.com/abstract=3922661 or http://dx.doi.org/10.2139/ssrn.3922661

Luigi Guiso (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana 62
Rome, 00187
Italy
+39 06 4792 4858 (Phone)
+39 06 4792 4872 (Fax)

HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/luigi-guiso/

Einaudi Institute for Economics and Finance ( email )

Via Sallustiana 62
rome, 00187
Italy

Massimo Morelli

Bocconi University ( email )

Via Roentgen 1
Milan, 20136
Italy

Tommaso Sonno

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

Helios Herrera

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

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