Inequality Aversion, Populism, and the Backlash Against Globalization
56 Pages Posted: 1 Aug 2018 Last revised: 10 Jul 2019
Date Written: July 8, 2019
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
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