An Economic Understanding of Populism: A Conceptual Framework of the Demand and the Supply Side of Populism
| Published date | 01 November 2023 |
| DOI | http://doi.org/10.1177/14789299221109449 |
| Author | István Benczes,Krisztina Szabó |
| Date | 01 November 2023 |
| Subject Matter | Articles |
https://doi.org/10.1177/14789299221109449
Political Studies Review
2023, Vol. 21(4) 680 –696
© The Author(s) 2022
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DOI: 10.1177/14789299221109449
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An Economic Understanding
of Populism: A Conceptual
Framework of the Demand and
the Supply Side of Populism
István Benczes1 and Krisztina Szabó1,2
Abstract
This article assesses progress in the economics-centred literature on populism along three key
themes and develops a conceptual framework to better understand the phenomenon. On the
demand side (t − 1), economics research identifies the effect of an exogenous economic shock
on a marginalised segment of society and works with the economic voting hypothesis. On the
supply side of populists in power (t), in the literature, populist rule is typically associated with
unsustainable expansionary fiscal and monetary policies and with trade protectionism. At t + 1,
by using rational and biased belief assumptions, economists provide implicit inputs for a seemingly
paradoxical question: why is a populist re-elected even if most populist policies assumably end
up in Pareto inferior outcomes? This article summarises and criticises the relevant economic
literature and shows that not only political science, but economics scholarship is instrumental for
studying populism at all three stages.
Keywords
populism, political economy, economic policy, voting behaviour
Accepted: 8 June 2022
Introduction
Research in both economics and political science has devoted considerable efforts to
understand the recent waves of populist backlash and its consequences. Prominent arti-
cles summarise the main findings, identify weaknesses and offer conceptual frameworks
to better understand the chain of events that stimulate populism (Berman, 2021; Guriev
and Papaioannou, 2020; Mudde and Rovira Kaltwasser, 2018; Rodrik, 2021). Current
reviews typically focus on the key debates about the causes of populism among political
scientists, economists and sociologists; there is, however, much less overview on what
1Department of World Economy, Corvinus University of Budapest, Budapest, Hungary
2Department of Political Science, Central European University, Vienna, Austria
Corresponding author:
Krisztina Szabó, Corvinus University of Budapest, Fővám Square 8, H-1093 Budapest, Hungary.
Email: krisztina.szabo11@uni-corvinus.hu
1109449PSW0010.1177/14789299221109449Political Studies ReviewBenczes and Szabó
research-article2022
Article
Benczes and Szabó 681
populists do once in power and on the re-election of populist incumbents. At the same
time, Mudde and Rovira Kaltwasser (2018: 1668) warn us that ‘scholars should not start
from scratch, but rather build upon the lessons that the existing academic literature offers’,
and thus, there is a need to better understand what the economics profession offers for
studying populism (and for the thickening of a thin-centred ideology (Kotwas and Kubik,
2019)).
To complement and add to the existing literature, we revolve around articles written in
the economics tradition to highlight the merit economists bring to studying populism, and
to discuss the potential the field has to further enrich our understating of populism. This
article is also one of the few to make an explicit distinction between the demand and sup-
ply of populism (along with Guiso et al., 2017; Rodrik, 2018a, 2021), while it also identi-
fies the key sequence of events: the demand for populism (t − 1); the economic policies of
populists in power (t); the re-election of a populist party (t + 1).1 We also fill the gap
articulated by Guriev and Papaioannou (2020: 5) that is ‘most recent research is empiri-
cal; theoretical research on the recent rise of populism is limited’, and we chart a path that
moves forward in time with the introduction of a conceptual framework on the economics
of populism. The framework complements and extends the causal framework suggested
by Rodrik (2021) by including three critical sequence of events and by linking economic
theories to these events.
On the demand side (t − 1), economists typically argue that economic hardship – in
particular trade shocks, immigration and financial crises – led to rising economic inequal-
ity, to changes in labour-market opportunities that in turn produced greater economic
anxiety and economic distress in certain segments of society. Scholars loosely follow the
economic voting hypothesis, and work with the assumption that following an exogenous
shock, a marginalised segment of the population punishes the incumbent government
and casts votes for a party that is (at least seemingly) in line with their best economic
interest. The profession typically considers non-economic factors as a by-product of
experiencing adverse economic change, and thus fails to understand an additional layer
of ideas that populist politicians are expressing. Political scientists, however, demon-
strate that the demand for populism does not necessarily come from economic hardship
per se, but from perceived unfairness and from the activation of populist attitudes that
are best understood through the ideational approach of populism (Margalit, 2019;
Zanotti and Rama, 2020).
Considerably less scholarly work exists on the supply side of populism and on the
economic policies of populist incumbents (t) in economics (Guriev and Papaioannou,
2020). Scholars, by and large, equate populist rule with expansionary fiscal and monetary
policies and with trade protectionist measures which are often complemented by the alter-
ation of the institutional landscape – the incentive structure – of the economy. Once in
power, populists tend to reject constraints on the conduct of economic policy and often
evoke irresponsible policies that result in Pareto inferior outcomes.
If populist policies end up on an unsustainable path of development and have a Pareto
inferior outcome that ultimately hurts the most vulnerable segment of the society they
purportedly aim to help, it is puzzling to understand why populists are re-elected (t + 1).
While there is almost no study on voter’s rationality concerning the re-election of a popu-
list party, there are some important principles and assumptions in the field of economics
(and in public choice) that are instrumental for understanding mechanisms at t + 1. In the
field of economics, voters’ irrational demand for bad economics is traditionally explained
on a rational basis: (1) voters have present biased preferences, thus bad economics with
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