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Financial crises and political radicalization: How failing banks paved Hitler’s path to power

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  • Doerr, Sebastian
  • Gissler, Stefan
  • Peydró, José-Luis
  • Voth, Hans-Joachim

Abstract

Do financial crises radicalize voters? We study Germany's 1931 banking crisis, collecting new data on bank branches and firm-bank connections. Exploiting cross-sectional variation in precrisis exposure to the bank at the center of the crisis, we show that Nazi votes surged in locations more affected by its failure. Radicalization in response to the shock was exacerbated in cities with a history of anti-Semitism. After the Nazis seized power, both pogroms and deportations were more frequent in places affected by the banking crisis. Our results suggest an important synergy between financial distress and cultural predispositions, with far-reaching consequences.

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  • Doerr, Sebastian & Gissler, Stefan & Peydró, José-Luis & Voth, Hans-Joachim, 2022. "Financial crises and political radicalization: How failing banks paved Hitler’s path to power," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 77(6), pages 3339-3372.
  • Handle: RePEc:zbw:espost:268939
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    3. Sascha O. Becker, Sascha O & Voth, Hans-Joachim, 2023. "From the Death of God to the Rise of Hitler," The Warwick Economics Research Paper Series (TWERPS) 1478, University of Warwick, Department of Economics.
    4. Jakub Grossmann & Stepan Jurajda, 2023. "Voting under Debtor Distress," CERGE-EI Working Papers wp744, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Kristian Blickle & Markus Brunnermeier & Stephan Luck, 2020. "Micro-evidence from a System-wide Financial Meltdown: The German Crisis of 1931," Working Papers 275, Princeton University, Department of Economics, Center for Economic Policy Studies..
    6. Kristian Blickle & Markus K. Brunnermeier & Stephan Luck, 2022. "Who Can Tell Which Banks Will Fail?," NBER Working Papers 29753, National Bureau of Economic Research, Inc.
    7. Becker, Sascha O. & Voth, Hans-Joachim, 2023. "From the Death of God to the Rise of Hitler," CAGE Online Working Paper Series 688, Competitive Advantage in the Global Economy (CAGE).
    8. Mara P. Squicciarini & Gianandrea Lanzara & Sara Lazzaroni & Paolo Masella, 2024. "Economic Shocks and Assimilation Policies: Phylloxera and Educational Expansion in French Algeria," BAFFI CAREFIN Working Papers 24221, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    9. Galofré-Vilà, Gregori, 2023. "Spoils of War: The Political Legacy of the German hyperinflation," Explorations in Economic History, Elsevier, vol. 88(C).
    10. Samira S. Abraham & Gianandrea Lanzara & Sara Lazzaroni & Paolo Masella & Mara P. Squicciarini, 2023. "The Spatial Drivers of Discrimination: Evidence From Anti-Muslim Fake News in India," Working Papers wp1180, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. Benczes, István & Szabó, Krisztina, 2023. "Társadalmi törésvonalak és gazdasági (ir)racionalitások. A közgazdaságtan szerepe és helye a populizmus kutatásában [Social cleavages and economic (ir)rationalities: The role of economics in populi," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 23-54.
    12. Gregori Galofre-Vila, 2021. "The Costs of Hyperinflation: Germany 1923," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 2101, Departamento de Economía - Universidad Pública de Navarra.
    13. Contreras, Salvador & Ghosh, Amit & Hasan, Iftekhar, 2023. "The effect of bank failures on small business loans and income inequality," Journal of Banking & Finance, Elsevier, vol. 146(C).
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    More about this item

    Keywords

    financial crises; political extremism; populism; anti-semitism; culture; Great Depression;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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