Inequality Aversion, Populism, and the Backlash Against Globalization
55 Pages Posted: 1 Aug 2018 Last revised: 20 May 2020
Date Written: May 18, 2020
Motivated by the recent rise of populism in western democracies, we develop a tractable equilibrium model in which a populist backlash emerges endogenously in a strong economy. In the model, voters dislike inequality, especially the high consumption of ``elites." Economic growth exacerbates inequality due to heterogeneity in preferences, which generates heterogeneity in returns on capital. In response to rising inequality, rich-country voters optimally elect a populist promising to end globalization. Equality is a luxury good. Countries with more inequality, higher financial development, and trade deficits are more vulnerable to populism, both in the model and in the data.
Keywords: inequality, populism, globalization, Brexit, Trump
JEL Classification: G11, G12, G18, D72, F65, P16
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