Inequality Aversion, Populism, and the Backlash Against Globalization
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.
The views in this paper are the responsibility of the authors, not the institutions with which they are affiliated, nor the National Bureau of Economic Research. For helpful comments, we are grateful to our discussants Raquel Fernandez, Eitan Goldman, Hanno Lustig, and Alp Simsek, but also to Luca Anderlini, John Cochrane, Pierre-Olivier Gourinchas, Cam Harvey, Andrew Karolyi, Paymon Khorrami, Hong Liu, Yao Zeng, conference participants at the 2018 ESSFM, 2019 Spring NBER Asset Pricing meeting, 2019 Spring NBER Political Economy meeting, 2019 WFA, 2019 MFA, 2019 MIT-FARFE Capital Markets Research Workshop, 2019 Czech and Slovak Economic Associations Meeting, 2019 PHBS Workshop in Macroeconomics and Finance, 2020 AFA, 2020 Jackson Hole Finance Conference, and seminar audiences at Bocconi, Carnegie Mellon, CERGE-EI, Chicago, Colorado, EIEF, Harvard, Imperial, LSE, McGill, Stanford, Washington, WU Vienna, Yale, and the National Bank of Slovakia. We are grateful to Will Cassidy, Mihir Gandhi, and Blair Vorsatz for outstanding research assistance and to the Fama-Miller Center for Research in Finance and the Center for Research in Security Prices for research support.
ĽUBOŠ PÁSTOR & PIETRO VERONESI, 2021. "Inequality Aversion, Populism, and the Backlash against Globalization," The Journal of Finance, vol 76(6), pages 2857-2906. citation courtesy of