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Populism’s original sin: Short-term populist penalties and uncertainty traps

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  • Woo-Mora, L. Guillermo

Abstract

This paper investigates the immediate economic impacts of populist policies. In 2018, the Mexican president-elect held an unofficial referendum with less than 1% turnout to halt the construction of Mexico City’s New International Airport. I show the policy is plausibly a natural experiment with nationwide impacts, preceding other macroeconomic shocks and populist policies dismantling economic and institutional checks. Using the synthetic control method, I find a 3.3% to 4.5% GDP reduction one year post-cancellation. Consistent with the uncertainty trap framework, this decline is due to heightened economic uncertainty and a significant drop in investment, reinforcing each other and leading to a prolonged economic downturn. The results highlight how populist policies can impose immediate economic costs by creating uncertainty traps, even before implementing institutional changes.

Suggested Citation

  • Woo-Mora, L. Guillermo, 2025. "Populism’s original sin: Short-term populist penalties and uncertainty traps," European Economic Review, Elsevier, vol. 172(C).
  • Handle: RePEc:eee:eecrev:v:172:y:2025:i:c:s0014292124002460
    DOI: 10.1016/j.euroecorev.2024.104917
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    More about this item

    Keywords

    Populism; Democracy; Economic growth; Investment; Economic uncertainty;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • P00 - Political Economy and Comparative Economic Systems - - General - - - General

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