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Discussion Paper Details

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Title: Inequality Aversion, Populism, and the Backlash Against Globalization

Author(s): Lubos P�stor and Pietro Veronesi

Publication Date: August 2018

Keyword(s): Brexit, Globalization, inequality, populism and Trump

Programme Area(s): Financial Economics, International Macroeconomics and Finance, International Trade and Regional Economics and Public Economics

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 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13107

Bibliographic Reference

P�stor, L and Veronesi, P. 2018. 'Inequality Aversion, Populism, and the Backlash Against Globalization'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13107