The Economic Analysis of Populism. A Selective Review of the Literature

Economic analysis is essential to the understanding of the rise and fall of populism. The conceptual and analytical framework of economics to the study of populism is still in its infancy, but great advances have been made in recent years. This paper reviews some key contributions behind this progress. When analyzing populism, economists face two methodological hurdles: lack of consensus and clarity about its definition and reconciling the populist vote with voter rationality. The former has plagued sociologists and political scientists for decades. As to the latter, it raises a conundrum: if populist policies are detrimental to economic growth, as most economists agree, the vote for a populist candidate suggests some irrationality or inefficiency in the political markets. But accepting that individuals are irrational when making political decisions, would imply that they are irrational when making economic decisions unless, of course, there is something fundamentally different about political markets. The works reviewed in this paper propose alternative approaches to address these issues. The most promising line of research in the economic analysis of populism incorporates and expands concepts developed by academics in other social sciences such as political theory, sociology, history and social psychology.