Working Paper: NBER ID: w30918
Authors: Ran Abramitzky; Netanel Benporath; Victor Lavy; Michal Palgi
Abstract: Research on the political and social impacts of financial crises has focused chiefly on free market economies, hindering our understanding of their effects in other settings. We exploit an episode of a financial crisis that hit the Israeli kibbutzim to study its impact in a socialist context. Contrary to findings in capitalistic economies, the crisis led to increased support of liberalized labor markets and reduced support for leftist political parties. These effects persisted in the long run, especially among the young. The crisis also reduced trust in leadership, but trust was restored shortly after agreements to settle the debt were signed, relieving the severity of the crisis. Our findings suggest that economic shocks may have different effects in a free market and socialist systems, in both cases leading individuals to question their current system.
Keywords: financial crisis; socialist economies; political behavior; social trust; economic values
JEL Codes: J00; P00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial crisis (G01) | increased support for liberalization of labor markets (J48) |
| financial crisis (G01) | decreased support for leftist political parties (P16) |
| financial crisis (G01) | shift in attitudes towards free market economies (P19) |
| financial crisis (G01) | reduced trust in kibbutz leadership (D70) |
| debt relief agreements (F34) | restored trust in kibbutz leadership (J54) |
| restored trust in kibbutz leadership (J54) | increased support for liberalization (E69) |
| financial crisis (G01) | voting for center-right political parties (D72) |
| severity of financial crisis (G01) | support for labor market liberalization (J48) |
| financial crisis (G01) | questioning centralized planning in socialist contexts (P21) |