How Right and Left Populists Impact Government Spending

Piergiuseppe Fortunato, Tanmay Singh and Marco Pecoraro research the behavior of populist leaders and parties around the world and how their policies influence subsequent government spending. Their research shows that populists on both sides of the ideological spectrum have very little in common in terms of policy, despite similar anti-elite rhetoric.

The year many identify with our current populist the spirit of the times, at least in the West, was 2016, when Donald Trump was elected president of the United States and the United Kingdom abandoned the European Union after a stunning referendum. But the emergence of populist movements in continental Europe and the elections of leaders such as Hugo Chavez, Vladimir Putin and Recep Tayyip Erdogan in major emerging economies predate this catalytic year and date back to the turn of the 21st century.

We tend to identify populists, especially when they are in power, with certain specific political traits, ranging from flexible fiscal policy (particularly responsive to popular demands) to disregard for liberal rules regarding the rule of law or rights social. But populism can be better described as a approach to politics rather than to a single, global way of governing. It's a tactic (a political communications tactic to be precise) that has been used for a long time around the world, at least Since in the 19th century, to gain and maintain power.

In fact, the most widely accepted definition Populism simply sees it as a set of ideas centered on a fundamental opposition between the pure people and the corrupt elite. Populism is therefore only a thin ideology, which means that it only responds to part of the political agenda. Therefore, almost any relevant actor on the political spectrum can combine populism with a host ideology, normally a form of right-wing nationalism or a form of socialism (including democratic socialism, which does not involve ownership of the 'State of the means of production) on the left. .

Globalization and populisms

The latest wave of populism has been partner with a violent reaction against the globalization of the world economy. In the mid-1990s, just before the emergence of populist movements around the world, the trade round that gave birth to the World Trade Organization (WTO) concluded successfully in Marrakech, paving the way for freer international movement of businesses and capital. and people.

Making investment freer tipped the scales in favor of capital, the most mobile of the factors of production, and increased its bargaining power relative to that of labor by exploiting cheaper labor markets. Real wages have since stopped growth in most countries, or did so to a much lesser extent than the return on capital. The consequence is that in developed and developing economies, inequality reached unprecedented heights. At the same time, increased immigration, particularly amid economic insecurity, has fostered cultural anxiety, a lack of social trust, and a sense of ethnic competition.

In this context, left-wing populists (socialists) have targeted inequality and neoliberal capitalist institutions like the WTO with redistributive policy proposals. On the other hand, right-wing populists (nationalists) focused on protecting voters from immigration. A vast literature supports this narrative, and indeed economic insecurity has been watch play an important role in explaining voter behavior.

The different conceptions of the people and the different enemies identified by left and right populists illustrate this dichotomy. Right-wing populism confuses the people with a struggling nation facing external threats to its security and well-being: immigrants, refugees, Islamic terrorism, international conspiracies, etc. The left, in contrast, defines the people in relation to social structures and institutions, for example the state and capital, which thwart their aspirations for self-determination. It is a construct that does not necessarily exclude hospitality towards people of other ethnicities or nationalities.

From rhetoric to reality

In a recent working paper, we document the multifaceted nature of the populist phenomenon and show how left-wing populist governments, which have built their success on protests against inequality and capitalist institutions, are generally associated with increased public and social spending. Conversely, right-wing populist governments, more likely to adopt a discourse based on anti-immigration and security positions, are characterized by more orthodox management of the public budget.

We employ a cross country database which codes populist leaders based on the political science definition of populist, that is, political leaders who prioritize the people's struggle against elites in their political campaigns and communication. He also distinguishes between left and right populists depending on who they target: economic elites and capitalist institutions or foreigners and minorities.

Figure 1 gives an idea of ​​the immediate consequences on public spending of the coming to power of left and right populist parties. Countries tend to spend around three percentage points of their GDP per year when a left-wing populist takes control of the government budget, both relative to that country's typical long-term spending rate (white bars) and at the contemporary global average spending rate (gray bar). ). Conversely, countries where right-wing populists have come to power experience a reduction of almost one percentage point of GDP in public spending relative to their country's typical long-term spending rate (the reduction relative to to the world average is only marginal).

Figure 1

The results in Figure 1 are not conditioned on economic events surrounding the populist's rise to power or year-to-year dynamics, and they do not use a strict control group. All of this is particularly important since countries experiencing a populist takeover, or a left-wing populist takeover versus a right-wing takeover, are likely not a coincidence when it comes to current economic situation of the country, including the government's economic policy and public budget.

We become more rigorous in Figure 2, where we apply the so-called synthetic control method (SCM). The SCM makes it possible to take into account the economic events surrounding the populist's entry into office by creating a “synthetic” comparison group (or counterfactual) which closely matches the economic characteristics of the group of countries examined.

The chart shows how the spending profile of left-populist governments visibly deviates from the trend that would have been expected in the absence of their rise, amounting to a relative increase in spending of around five percentage points after five years. The spending habits of right-wing populists also diverge markedly from those of right-wing populists. counterfactual, but in the opposite direction. After five years, spending is about five percentage points below the level counterfactual. It is not surprising that when aggregating the two groups, the positive and negative differences tend to balance out.

Figure 2

When we look at the composition of public spending, we find that the change in trend can be explained at least in part by an increase (decrease) in social spending in left (right) populist governments. Figure 3 below shows the structure of education spending. Public spending on social protection is also affected.

Figure 3

Nowhere has the dichotomous nature of populist governance become more evident than in Italy. The country was governed by a populist coalition led by alleft-wing populist movement (the Five Star Movement or M5S) between 2018 and 2019, while a right-wing coalition led by a right-wing nationalist populist party (the Brothers of Italy) came to power in September 2022. Interestingly, the The M5S government's flagship policy was the introduction of a new minimum income system (the citizenship income or reddito di cittadinanza) which costs the state around nine billion euros per year. The Brothers of Italy almost entirely abolished this social protection during the first months of their government.

Conclusion

A vast The literature has examined the reasons for the recent emergence of populist discourse and the success of populist leaders in democratic countries around the world. Many authors agree on the importance of globalization in triggering a series of economic shocks and a change in income distribution that could have deepened existing social and cultural divisions and fueled protest political movements.

Far less effort, at least until recently, has been devoted to examining the behavior of populist leaders and their policy choices once in power. This asymmetry can be explained in part by the fact that the definition of populism on which political scientists and economists now converge is extremely vague or imprecise. As such, this definition ends up encompassing a wide variety of political movements with visions of society, goals, and priorities that can be wildly different. The glue is simply the narrative and tone of political propaganda. But one tactic aimed at generating consensus can be consistent (and in fact is) with several strategies aimed at governing a country.

Authors' disclaimer: The views expressed in this article and the underlying research are those of the authors and do not necessarily reflect the views of the United Nations or the Federal Statistical Office.

Articles represent the opinions of the authors, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.