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Working Paper
Federalisme Fiscal
Carlos Sanz, Albert Solé-Ollé, Pilar Sorribas-Navarro

2020/02: Betrayed by the elites: how corruption amplifies the political effects of recessions

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).



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