Journal of Finance Vol. 76 No. 6 2021
Inequality Aversion, Populism, and the Backlash against Globalization
Abstract
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 leads to heterogeneity in returns on capital. In response to rising inequality, 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.
- DOI
- 10.1111/jofi.13081
- Volume
- 76
- Issue
- 6
- Pages
- 2857-2906
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref