An Economic Understanding of Populism: A Conceptual Framework of the Demand and the Supply Side of Populism

Abstract

This article assesses progress in the economics-centred literature on populism along three key themes and develops a conceptual framework to better understand the phenomenon. On the demand side (t − 1), economics research identifies the effect of an exogenous economic shock on a marginalised segment of society and works with the economic voting hypothesis. On the supply side of populists in power (t), in the literature, populist rule is typically associated with unsustainable expansionary fiscal and monetary policies and with trade protectionism. At t + 1, by using rational and biased belief assumptions, economists provide implicit inputs for a seemingly paradoxical question: why is a populist re-elected even if most populist policies assumably end up in Pareto inferior outcomes? This article summarises and criticises the relevant economic literature and shows that not only political science, but economics scholarship is instrumental for studying populism at all three stages.

The Rise of Populist Phenomenon in India: Implications for India`s Relation With Pakistan and China

“…The scholars have argued about the economic distress and unfairness felt by the society which not primarily because of economic hardships but rather also shaped by populist attitudes using the ideational frameworks (Benczés & Szabó, 2022). The rejection of the UPA by the voters in 2014 general elections is not only based on corruption allegation and narrative of 'dynastic politics' of the Congress party, the party`s policies also crystallize the dismal economic outcomes without any sustainable policies, in spite of the Mammohanomics .…”

On the optimality of policy choices in the face of biased beliefs, retrospective voting and the down-up problem

“…A bad yet popular policy bolsters election outcomes today, but its nefarious later consequences harm election outcomes tomorrow. The authors find that, in the most empirically plausible settings, policies will form "a mediocre mix of either good yet unpopular or popular though bad policies" (Bischoff and Siemers 2013, p.164), a conclusion with strong echoes in the literature (Dornbusch and Edwards 1990;Rovira Kaltwasser 2009;Acemoglu et al 2013;Mudde andRovira Kaltwasser 2017, 2018;Benczes and Szabó 2022). Crucially, however, they also show that retrospective voting counteracts the potentially deleterious effects of biased voting and thus could foster the selection of socially better policies.…”

“…One of the consequences of biases in voters' beliefs is an increased likelihood that a policy with good outcomes for voters is, nevertheless, unpopular, or vice-versa. This has been studied by many (for a survey see Benczes and Szabó 2022). Bischoff and Siemers (2013), in particular, develop a dynamic party competition model that, besides biased beliefs, also takes into account another important regularity in voters' behavior: their propensity to vote retrospectively, i.e., to assess the competence of a political agent based on their estimates of the state of the economy.…”

Negative economic shocks and the compliance to social norms

“…In fact, while comparing the rich and the poor is confounded by environmental and individual factors, under certain circumstances, NES may be a plausible source of income or wealth variation or can be manipulated in the lab. More recently, victims of NESs have tended to support extreme candidates at the elections, which has furthered the interest in how suffering an NES shapes behavior (Benczes and Szabó, 2023;Guiso et al, 2017;Inglehart and Norris, 2016;Rodrik, 2021).…”