Misspecified Politics and the Recurrence of Populism

Gilat Levy, Ronny Razin and Alwyn Young

American Economic Review, 2022, vol. 112, issue 3, 928-62

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)
Date: 2022
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Citations: View citations in EconPapers (14)

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DOI: 10.1257/aer.20210154

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