On Credit Guarantees to Firms and the Far Right

Abstract

The phenomenon of political populism and its financial determinants have proved elusive. We utilize the sudden and uneven change in credit conditions during the Covid-19 pandemic and the unprecedented government credit guarantee program in France to investigate how liquidity support to firms affect support for right-wing populist parties. Drawing on credit registry data, we build a postcode-municipality-level dataset and show a robust negative relationship between government-guaranteed credit to firms and change in support for the far right. The relationship is driven by micro firms where the median number of employees is one, and where the government support is more tangible to the employees-electorate working for those firms. This relationship holds across presidential and parliamentary elections, and the results are robust for the inclusion of standard demographic and socio-economic characteristics of populist vote, and Covid-19 incidence.

Keywords: Firms, Credit, Government guarantees, Fiscal policy, Populism

JEL Classification: D72, E44, G18, G21, H81