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From finance to fascism: the real effect of Germany's 1931 banking crisis


Voth, Hans-Joachim; Doerr, Sebastian; Gissler, Stefan; Peydró, José Luis (2019). From finance to fascism: the real effect of Germany's 1931 banking crisis. CEPR Discussion Papers 12806, Centre for Economic Policy Research.

Abstract

Do financial crises radicalize voters? We analyze a canonical case - Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.

Abstract

Do financial crises radicalize voters? We analyze a canonical case - Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Financial crises, real effects, extremism, polarisation, Nazi Party, Great Depression, Germany
Language:English
Date:6 March 2019
Deposited On:11 Feb 2020 14:02
Last Modified:12 Feb 2020 12:10
Series Name:CEPR Discussion Papers
Number of Pages:59
ISSN:0265-8003
Additional Information:Revised version
OA Status:Green
Official URL:https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12806

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