Economic Shocks and Populism: The Political Implications of Reference-Dependent Preferences by Nicola Pavoni

Join us for this weeks Macroeconomics Research Seminar, Spring Term 2022.

Professor Nicola Pavoni from the Department of Economics, at the University of Bocconi will present research on Economic Shocks and Populism: The Political Implications of Reference-Dependent Preferences.

Abstract

This paper studies electoral competition over redistributive taxes between a safe incumbent and a risky opponent. As in prospect theory, economically disappointed voters become risk lovers, and hence are attracted by the more risky candidate. We show that, after a large adverse economic shock, the equilibrium can display policy divergence: the intrinsically more risky candidate proposes lower taxes and is supported by a coalition of very rich and very disappointed voters, while the safe candidate proposes higher taxes. This can explain why new populist parties are often supported by economically dissatisfied voters and yet they run on economic policy platforms of low redistribution. We show that survey data on the German SOEP are consistent with our theoretical predictions on voters’ behavior.

This seminar will be held on campus. This event is open to all levels of study and is also open to the public. To register your place, please contact the seminar organisers.

This event is part of the Macroeconomics Research Seminar Series.