Going to extremes: Politics after financial crises, 1870 – 2014 | Funke, M., et al.,

Manuel Funke, Moritz Schularickb,, Christoph Trebesch 
Abstract: Partisan conflict and policy uncertainty are frequently invoked as factors contributing to slow post-crisis recoveries. Recent events in Europe provide ample evidence that the political aftershocks of fi nancial crises can be severe. In this paper we study the political fall-out from systemic fi nancial crises over the past 140 years. We construct a new long- run dataset covering 20 advanced economies and more than 800 general elections. Our key fi nding is that policy uncertainty crises strongly after financial crises as government majorities shrink and polarization rises. After a crisis, voters seem to be particularly attracted to the political rhetoric of the extreme right, which often attributes blame to minorities or foreigners. On average, far-right parties increase their vote share by 30% after a financial crisis. Importantly, we do not observe similar political dynamics in normal recessions or after severe macroeconomic shocks that are not financial in nature.

via with thanks Fareed Zakaria "Global Briefing"