Bank Failures and Elite Democratic Consent: An Exploration with Individual Panel Data

Abstract

Do economic shocks influence elite democratic attitudes and commitment? Elites play a crucial role in shaping democratization processes and their consent is oftentimes thought of as a necessary condition to consolidate democratic political institutions (Ace- moglu & Robinson, 2006; Boix, 2003). Yet, this theory has never been tested at the micro-level with individual data. In this paper we exploit the failure of a large bank in Catalonia in 1931 to assess the impact in democratic support held by individuals ex- posed and unexposed to this financial shock. We use a novel individual-level database that assembles the amounts lost by each individual depositor of the bank, and then we match individuals to their electoral turnout behavior in different elections from individ- ual voting roll calls. We specially focus on the last elections before the outbreak of the Spanish Civil War to capture support for democracy because in this election elites were divided and part of the political parties boycotted the elections, hence making turnout a de facto signal of support for democracy. This unique setting allows us to test whether economic interests are indeed influential on democratic consent at the individual-level. The individual panel structure of the data allows the inclusion of individual FEs and a difference-in-difference identification strategy that exploits individuals’ differential turnout rates across several elections. Preliminary results indicate that, as expected, individuals exposed to financial losses were less likely to turnout in the last elections before the Spanish Civil War. We interpret this differential abstention rates among in- dividuals exposed to the bank collapse as evidence of a loss in democratic consent of these individuals. To explore further the mechanisms at play, we match the individual depositors lists and the individual voting roll calls with individual registers of political associations and clubs. We show that the differential abstention rates among depositors exposed to the bank collapse are driven by individual members of associations and clubs that explicitly supported the boycott of the last democratic elections. Overall, we provide the first ever individual-level evidence from the interwar period that shows that indi- vidual elites’ exposure to financial shocks during the 1930s caused the abandonment of individual democratic consent.