Two fascinating studies.
Funke, Schularick and Trebesch: Going to extremes: Politics after Financial Crises, 1870-2014:
we study the political fall-out from systemic financial 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 finding is that policy uncertainty rises 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. (…)
The evidence we uncover shows that financial crises put a strain on modern democracies. The typical political reaction is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalization of parliaments rises and the overall number of parties represented in parliament jumps. (…)
Financial crises are politically disruptive, even when compared to other economic
crises. Indeed, we find no (or only slight) political effects of normal recessions and different responses in severe crises not involving a financial crash. In the latter, right wing votes do not increase as strongly and people rally behind the government.
Mian, Sufi and Trebbi (2014) Resolving Debt Overhang: Political constraints in the aftermath of financial crises:
we show that financial crises are systematically followed by political polarization and that this may result in gridlock and anemic reform. (…) In figure 6 we employ the official aggregate World Value Survey from 1981-2008, which includes a question on self-positioning on the political scale (1 is most liberal, 10 most conservative). The sample covers about 250,000 individual interviews from 60 countries, which we matched to the pre-crisis and post-crisis RR crisis indicators and then collapsed based on their selected ideological bin. After a crisis, the share of centrists/moderates in a country goes down in 3 out of 4 types of crisis and the share of extremists (left or right radicals) goes up in 7 out of 8 possible cases. Interestingly, while banking and currency crises are neutral (i.e. they increase extremists on both the left and the right of the political spectrum), inflation crises appear to produce more conservative extremists and debt crises produce many more left-wing radicals. (…)
Further, financial crises move political systems toward systematically more polarized legislatures and fragmented political scenarios. After a crisis, governments have to rely on weaker coalitions, oppositions grow larger and more fragmented, and overall political disintegration becomes the norm.