Demagogues and the economic fragility of democracies by Dan Bernhardt, Stefan Krasa and Mehdi Shadmehr
By: Bernhardt, Dan
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Contributor(s): Krasa, Stefan | Shadmehr, Mehdi.
Material type: 
ArticleSubject(s): DEMOCRACIA | POPULISMO | DESARROLLO ECONOMICO | DESIGUALDAD | POBREZA | MODELOS ECONOMETRICOS
In:
The American Economic Review v. 112, n. 10, October 2022, p. 3331-3366Summary: We investigate the susceptibility of democracies to demagogues, studying tensions between representatives who guard voters' long-run interests and demagogues who cater to voters' short-run desires. Parties propose consumption and investment. Voters base choices on current-period consumption and valence shocks. Younger/poorer economies and economically disadvantaged voters are attracted to the demagogue's disinvestment policies, forcing farsighted representatives to mimic them. This electoral competition can destroy democracy: if capital falls below a critical level, a death spiral ensues with capital stocks falling thereafter. We identify when economic development mitigates this risk and characterize how the death-spiral risk declines as capital grows large.
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| OP 234/2021/8 The American Economic Review | OP 234/2022/1 The American Economic Review | OP 234/2022/10 The American Economic Review | OP 234/2022/10-1 Demagogues and the economic fragility of democracies | OP 234/2022/10-2 Fake news, voter overconfidence, and the quality of democratic choice | OP 234/2022/1-1 Employment structure and the rise of the modern tax system | OP 234/2022/11 The American Economic Review |
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We investigate the susceptibility of democracies to demagogues, studying tensions between representatives who guard voters' long-run interests and demagogues who cater to voters' short-run desires. Parties propose consumption and investment. Voters base choices on current-period consumption and valence shocks. Younger/poorer economies and economically disadvantaged voters are attracted to the demagogue's disinvestment policies, forcing farsighted representatives to mimic them. This electoral competition can destroy democracy: if capital falls below a critical level, a death spiral ensues with capital stocks falling thereafter. We identify when economic development mitigates this risk and characterize how the death-spiral risk declines as capital grows large.
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