The Italian payback effect: the causal impact of the great recession on political discontent

Grounding on the theories of economic voting and political opposition, this paper investigates whether the Italian Local Labour Markets (LLMs) most affected by the Great Recession reacted in the ballot box voting against the domestic institutions or in favour of anti-European parties. We exploit a recent econometric technique in the counterfactual framework, which adopts a non-parametric generalisation of the difference-in-differences estimator. Our findings show a causal negative impact on the share of Berlusconi's party, the incumbent party during the crisis, statistically significant in those LLMs with the lowest institutional quality and in the Centre and in the Islands of Italy. We find no causal effect on the anti-European vote whatsoever. People living in the LLMs that suffered the most the effects of the Great Recession used their vote to harm the party in charge, which they deemed responsible for the economic consequences, with a payback effect.