Financial Crisis in a Socialist Setting: Impact on Political Behavior, Social Trust, and Economic Values
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.
Avigail Peleg and Yeshaya Nussbaum provided excellent research assistance. We are grateful to Alvaro Calderon, Florencia Hnilo, Jenna Kowalski, Yotam Margalit and David Yang for most useful comments and suggestions and to many seminar and conference participants. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.