Scarred for Life? Recession Experiences, Beliefs and the State

Abstract

This paper investigates ways in which major recessions have impacted individuals’ views about the role of the state in the economy across the world. We build on three complementary sources of data. We analyse experiences during the COVID-19 crisis using a survey of more than 39,000 adults across 14 economies as well as during the global financial crisis using a representative survey covering 34 economies. Exploiting variation across individual experiences during these crises, we find that support for state ownership and redistribution of income is significantly higher among individuals who experienced job losses and, to a lesser extent, among those who experienced an income shock. We show that policy preferences may become self-reinforcing: those who only experienced an income shock are relatively more likely to support benefits for the working poor, while those who experienced job losses favour unemployment benefits. To track the longer-term effects of crisis experiences, we rely on six waves of the World Value Surveys spanning over 100 economies and exploit differences in lifetime exposures to crises by country, year of birth and survey year. Individuals who lived through a major recession during adulthood express a stronger preference for state ownership and redistribution of income. Moreover, we show that the impacts of multiple recessions on attitudes can accumulate.