Betrayed by the Elites: How Corruption Amplifies the Political Effects of Recessions

Abstract

We investigate whether corruption amplifies the political effects of economic crises. Using Spanish municipal-level data and a difference-in-difference strategy, we find that local unemployment shocks experienced during the Great Recession (2008–2015) increased political fragmentation. This effect was four times larger in municipalities exposed to malfeasance than in municipalities without a history of political corruption. We bolster this evidence by showing that, conditional on province and population strata fixed effects, there is no evidence of differential pre-trends. We also find that the interaction of unemployment and corruption harms the two traditional main parties and benefits especially the new party on the left ( Podemos).

Corruption: Governance challenge towards reducing unemployment in Nigeria

“…This therefore implies that the high rate of unemployment in the country is largely induced by the substantial level of corruption; as corruption distorts government decisions and cripples economic conditions across the economy (Hoinaru et al, 2020), the creation of sustainable job opportunities would be hindered. Estimated outcomes also corroborate the assertion that the incidence of unemployment could be exacerbated by higher corruption (Sanz et al, 2022), and that the natural rate of unemployment may not be maintained if corruption is not effectively controlled (Kırşanlı, 2023). These findings indeed stress that a high level of corruption will give rise to unemployment crisis.…”

Unemployment – Corruption Relationship in OECD Countries: System GMM Approach

“…They find unemployment is a persistent phenomenon in SSA; however, corruption in the public sector does not explain this persistence. Sanz et al (2022) investigate whether corruption intensifies the political outcomes of economic crises. The authors employ municipal-level Spanish data with a difference-in-difference methodology.…”

The Societal Costs of Inflation and Unemployment

“…Exposed to corruption, individuals lose trust in politicians (Giommoni, 2021;Sole-Olle and Sorribas-Navarro, 2018), the private sector (Gillanders and Neselevska, 2018), and the International Monetary Fund and the World Bank (Breen and Gillanders, 2015). In addition, when facing aggregate unemployment and economic hardship, individuals are more likely to think that politicians are incapable of solving their country's economic problems (Sanz et al, 2022). As a result, people lose confidence in political institutions and vote less for the current government officials, and corruption exacerbates this effect (Guiso et al, 2019;Margalit, 2019;Sanz et al, 2022).…”