Financial Crisis, Creditor‐Debtor Conflict, and Populism

We study the impact of debtor distress on support for a populist far‐right political party during a financial crisis. Our empirical approach exploits variation in exposure to foreign currency household loans during a currency crisis in Hungary. Foreign currency debt exposure leads to a large, persis...

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Bibliographic Details
Published in:The Journal of finance (New York) 2022-08, Vol.77 (4), p.2471-2523
Main Authors: Gyöngyösi, Gyözö, Verner, Emil
Format: Article
Language:English
Subjects:
Conservatism
Creditors
Currency
Debt cancellation
Economic crisis
Loans
Political parties
Populism
Psychological distress
Right wing politics
Voters
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Summary:We study the impact of debtor distress on support for a populist far‐right political party during a financial crisis. Our empirical approach exploits variation in exposure to foreign currency household loans during a currency crisis in Hungary. Foreign currency debt exposure leads to a large, persistent increase in support for the populist far right. We document that the far right advocated for foreign currency debtors' interests by proposing aggressive debt relief and was rewarded with support from these voters. Our findings are consistent with theories emphasizing that conflict between creditors and debtors can shape political outcomes after financial crises.
ISSN:1540-6261
0022-1082
1540-6261
DOI:10.1111/jofi.13138