Inequality Aversion, Populism, and the Backlash Against Globalization

56 Pages Posted: 1 Aug 2018 Last revised: 10 Jul 2019

See all articles by Lubos Pastor

Lubos Pastor

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Pietro Veronesi

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 8, 2019

Abstract

Motivated by the recent rise of populism in western democracies, we develop a model in which a populist backlash emerges endogenously in a growing economy. In the model, voters dislike inequality, especially the high consumption of "elites." Economic growth exacerbates inequality due to heterogeneity in risk aversion. In response to rising inequality, rich-country voters optimally elect a populist promising to end globalization. Countries with more inequality, higher financial development, and trade deficits are more vulnerable to populism, both in the model and in the data. Evidence on who voted for Brexit and Trump in 2016 also supports the model.

Keywords: inequality, populism, globalization, risk aversion, Brexit, Trump

JEL Classification: G11, G12, G18, D72, F65, P16

Suggested Citation

Pastor, Lubos and Veronesi, Pietro, Inequality Aversion, Populism, and the Backlash Against Globalization (July 8, 2019). Available at SSRN: https://ssrn.com/abstract=3224232 or http://dx.doi.org/10.2139/ssrn.3224232

Lubos Pastor (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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773-834-4080 (Phone)
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HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pietro Veronesi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-6348 (Phone)
773-702-0458 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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