Inequality, redistribution and the rise of outsider candidates

We provide a model of electoral competition between an establishment and an outsider candidate in which each candidate has a fixed characteristic that voters care about and promises a policy of redistribution from skilled to unskilled voters. The voters perceive the establishment candidate to be more beholden to special interests and therefore more likely to renege on a promise of a large policy change in favor of the status-quo after the election. The equilibrium features policy divergence and greater targeting of the electorally dominant voter group by the outsider candidate. Furthermore, while higher income inequality leads to polarization of support for the two candidates, it benefits the outsider candidate in a radical equilibrium with promises of greater redistribution. These results provide a theoretical underpinning for the recent evidence that links voters' economic distress due to trade exposure or skill-biased technological change to support for outsider candidates.