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.
Our interpretation of our findings is that Spain experienced a civil war because its political institutions could not deal with internal socio-economic conflict. Even though de jure political power was at times in the hand of the workers, reforms were blocked by the de facto power of land owners (see Acemoglu & Robinson (2006)) which made the conflict escalate. In this way the Spanish case sounds a warning to an ongoing tendency in Western democracies to polarize politically and an increased readiness to engage in political violence around the world.
Paper has been published as a the CEPR paper number 15479 and a Barcelona GSE working paper. The latest version can also be downloaded here.