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The cost of political uncertainty: Evidence from Catalonia

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  • Galasso, Vincenzo
Abstract
Nationalist demands for more autonomy or independence create uncertainty. Negotiated agreements over shared legal, administrative and fiscal responsibilities between central and regional authorities are associated with political uncertainty. Unilateral moves towards full independence create deep political uncertainty. We use two empirical methodologies to evaluate the costs of the uncertainty associated with the Catalan-Spanish negotiation for the Catalan Statute and with the demand for independence. 2017 Catalan survey data suggest that entrepreneurs, concerned about the business environment, favored the status quo over independence. Using an event approach methodology, we estimate that the immediate stock market reaction to the approval of the Catalan Statute was negative for (Catalan) firms in the tradable sector. The large political uncertainty due to the 2017 referendum had an even stronger negative stock market effect on all Catalan firms. Our findings are suggestive of costly political uncertainty from quests for more autonomy or independence.

Suggested Citation

  • Galasso, Vincenzo, 2022. "The cost of political uncertainty: Evidence from Catalonia," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 250-259.
    • Handle: RePEc:eee:jeborg:v:201:y:2022:i:c:p:250-259
    DOI: 10.1016/j.jebo.2022.07.024
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    Cited by:

    1. Azqueta-Gavaldon, Andres, 2023. "Political referenda and investment: Evidence from Scotland," European Journal of Political Economy, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Autonomy; Independence; Joint administrative responsibility; Event approach methodology;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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