Long-Term Causes of Populism GI Bischi ** . Favaretto * E. S-Carrera ** F ∗ Boston College, Morrissey College of Arts and Sciences, Economics Department. ∗∗ Department of Economics, Society, and Politics. University of Urbino Carlo Bo Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Outline Abstract 1 Motivation 2 Literature review Our contribution The Model 3 The One-Shot Game The Evolutionary (Replicator) Dynamics Left-wing and right-wing populism Concluding remarks 4 Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Abstract Why populism is emerging now in Europe and USA (establishing also in Latin America)? What model of political choice may explain this fact? Our paper addresses these questions by building an evolutionary game with two groups of players that decide whether to support a populist party by weighting demand for redistribution and demand for tough policy against immigration. The stability of the equilibria depends on the crucial parameters of the model, namely: fear of immigrants, the effect that population’s type (share of citizens supporting populism) have on individual preferences, and eco- nomic inequality. The equilibria are able to represent different cases of populism: South- American left-wing populism and European right-wing populism. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Motivation: What is Populism? Populism consists in political movements that share a demand for short-term pro- tection, as from immigrants and economic hardship. Populist politics looks for simplistic solutions to complex problems (Guiso et al. 2017, Kaltwasser 2018). Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Motivation: What is Populism? " Populist politics looks for simplistic solutions to complex problems. It threatens to bypass the institutional checks and balances that guarantee moderation and a place for expertise in public policy-making. It can empower a cynical politics in which policy-makers manipulate public demands for short-term political gain, claiming to be acting ‘for the people’. " The Pied Piper (a leader who makes irresponsible promises) and his followers all scream for... Giving into the Pied Piper, will do nothing but make the problem worse. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Motivation: The rise of Populism Fear to immigrants and unemployment... ! ! ! Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED) !
Motivation: The rise of economic inequality A second important fact is that economic inequality increased sub- stantially. The Inclusive Development Index 2018, a snapshot of the gap be- tween rich and poor, shows that economic inequality has risen or remained stagnant in 20 of the 29 advanced economies while poverty increased in 17. Moreover, the report states, both in advanced and emerging economies wealth is significantly more unequally distributed than income, i.e. economic inequality. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Motivation: The rise of economic inequality Figure: Income inequality and growth in Europe: Growth incidence curve, 1980-2017 Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Outline Abstract 1 Motivation 2 Literature review Our contribution The Model 3 The One-Shot Game The Evolutionary (Replicator) Dynamics Left-wing and right-wing populism Concluding remarks 4 Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Literature review Dustman, Eichengreen et al (2017): strong statistical association between immigrant settlement and vote shares for righ-wing pop- ulist parties. Han (2016) presents evidence in line with our setup: higher income inequality is associated with increases in vote for radical right-wing parties (a subset of our definition of populists), but only for the poor. Acemoglu et al (2013) model left-wing populism with a signaling mechanism. Aggeborn and Persson (2017) build a model where support for right-wing politicians comes from poor people because they prefer to consume the basic public services instead of a global public good (assumed to be offered by left-wing politicians). Di Tella and Rotemberg (2016) build a model where populism emerges as a demand for insurance against betrayal. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Outline Abstract 1 Motivation 2 Literature review Our contribution The Model 3 The One-Shot Game The Evolutionary (Replicator) Dynamics Left-wing and right-wing populism Concluding remarks 4 Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Our contribution Our contribution is original in several ways: First, we tackle the demand for populism with a game-theory ap- proach. Second, we use the evolutionary game theory approach, that allows us to see how changes in share of citizens that support populists affect the equilibria. 1 We present a model that focuses on two deep and long-term causes of populism: economic inequality and salience of immigration. Hence, we are able to make a prediction on the persistence of populism in Europe. Our framework allows us to characterize also other form of populism, such as the left-wing South-american one. 1 But why do we consider the evolutionary game theory approach? Basically the answer is because we claim that agents are not perfectly rational (in the economic sense) when supporting or not populism. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Our contribution Our contribution is original in several ways: First, it provides a rational choice analysis of populism as populism is commonly understood. Second, it shows the long-term causes and so the stability or not of a populist system. We address two issues: i) what are the economic roots of pop- ulism? and ii) what are the factors that affect the emergence of right- and/or left-wing populism? Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
Outline Abstract 1 Motivation 2 Literature review Our contribution The Model 3 The One-Shot Game The Evolutionary (Replicator) Dynamics Left-wing and right-wing populism Concluding remarks 4 Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
The One-Shot Game. Important assumptions of the model Citizens cannot distinguish growth perspective between a populist 1 government and a mainstream party one. In actual populists’ agenda, there is a strong tie with demand policies 2 such as higher government spending using debt emission. Since we want to analyze long-run evolutionary equilibria, our approach doesn’t focus on it because these policies are implemented only for a short period of time (few years) before taxes needs to be increased. Instead, we consider a longer time frame that allows us to assume a 3 Ricardian taxation framework: we assume that expansionary policies funded by debt will eventually be repaid by higher taxes or higher interests on government bonds due to default risk. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
The One-Shot Game Consider that citizens are either rich, R , or poor, P , with two different strategies regarding populism: supporting, S , and not-supporting, NS . Assume that: Wealth of an individual of class i = { R , P } is denoted by W i > 0. Labor income is denoted by I > 0. Poors do not work and receive transfers from proportional taxation from the rich. Transfers to Poor people is denoted by T j > 0, ∀ j = { S , NS } . Citizens R face income taxes ¯ τ ∈ ( 0 , 1 ) and τ ∈ ( 0 , 1 ) , ¯ τ > τ . The redistributional policy applied by populists redistribute a certain amount of income from Rich to Poor. Being in favor of populism implies to expect some psychological benefits, denoted by a i ( · ) ∈ R , ∀ i = { R , P } , depending on exogenous salience of immigration policy. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
The One-Shot Game Hence, a normal-form representation of this game is presented in the following payoff matrix, R \ P NS S NS ( 1 − τ ) ( W R + I ) , W P + T NS ( 1 − τ ) ( W R + I ) , W P + T NS + a P S ( 1 − ¯ τ ) ( W R + I ) + a R , W P + T S ( 1 − ¯ τ ) ( W R + I ) + a R , W P + T S + a P Notice that, if a i > 0, i = { R , P } then the dominant strategy is supporting Populism, otherwise the dominant strategy is not-supporting populism. Therefore, the game has two pure Nash equilibria: ( NS , NS ) = (( 1 , 0 ) ; ( 1 , 0 )) if a i < 0 , and ( S , S ) = (( 0 , 1 ) ; ( 0 , 1 )) if a i > 0 , the latter is the dominant payoff if a i > 0. Bischi, Favaretto, S-Carrera Popuism on the tip of the Iceberg 11th Nonlinear Economic Dynamics (NED)
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