Misspecified politics and the recurrence of populism

Ronny Razin, Gilat Levy and Alwyn Young

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We develop a dynamic model of political competition between two groups that differ in their subjective model of the data generating process for a common outcome. One group has a simpler model than the other group as they ignore some relevant policy variables. We show that policy cycles must arise and that simple world views—which can be interpreted as populist world views—imply extreme policy choices. Periods in which those with a more complex model govern increase the specification error of the simpler world view, leading the latter to overestimate the positive impact of a few extreme policy actions.

JEL-codes: D72 D83 K42 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2022-03-01
New Economics Papers: this item is included in nep-mic and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in American Economic Review, 1, March, 2022, 112(3), pp. 928 - 962. ISSN: 0002-8282

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