Economic Uncertainty and Divisive Politics: Evidence from the dos Españas

• Authors: Carlos Sanz, Sandra García-Uribe and Hannes Mueller.
• BSE Working Paper: 1240 | March 21
• Keywords: Civil War , economic policy uncertainty , political polarization , social conflict , agrarian reform , natural language processing , tf-idf
• JEL codes: D72, D74, N14, N24, N44
• Civil War
• economic policy uncertainty
• political polarization
• social conflict
• agrarian reform
• natural language processing
• tf-idf

This article exploits two newspaper archives to track economic policy uncertainty in Spain in 1905-1945, a period of extreme political polarization. We find that the outbreak of the civil war in 1936 was anticipated by a striking upward level shift of uncertainty in both newspapers. We study the dynamics behind this shift and provide evidence of a strong empirical link between increasing uncertainty and the rise of divisive political issues at the time: socio-economic conflict, regional separatism, power of the military, and role of the church. This holds even when we exploit variation in content at the newspaper level.