Demagogues and the Economic Fragility of Democracies
AbstractWe investigate the susceptibility of democracies to demagogues, studying tensions between representatives who guard voters' long-run interests and demagogues who cater to voters' short-run desires. Parties propose consumption and investment. Voters base choices on current-period consumption and valence shocks. Younger/poorer economies and economically disadvantaged voters are attracted to the demagogue's disinvestment policies, forcing farsighted representatives to mimic them. This electoral competition can destroy democracy: if capital falls below a critical level, a death spiral ensues with capital stocks falling thereafter. We identify when economic development mitigates this risk and characterize how the death-spiral risk declines as capital grows large.
CitationBernhardt, Dan, Stefan Krasa, and Mehdi Shadmehr. 2022. "Demagogues and the Economic Fragility of Democracies." American Economic Review, 112 (10): 3331-66. DOI: 10.1257/aer.20211125
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E21 Macroeconomics: Consumption; Saving; Wealth
- E22 Investment; Capital; Intangible Capital; Capacity
- E32 Business Fluctuations; Cycles