Populism’s original sin: Short-term populist penalties and uncertainty traps

L. Guillermo Woo-Mora

European Economic Review, 2025, vol. 172, issue C

Abstract: This paper investigates the immediate economic impacts of populist policies. In 2018, the Mexican president-elect held an unofficial referendum with less than 1% turnout to halt the construction of Mexico City’s New International Airport. I show the policy is plausibly a natural experiment with nationwide impacts, preceding other macroeconomic shocks and populist policies dismantling economic and institutional checks. Using the synthetic control method, I find a 3.3% to 4.5% GDP reduction one year post-cancellation. Consistent with the uncertainty trap framework, this decline is due to heightened economic uncertainty and a significant drop in investment, reinforcing each other and leading to a prolonged economic downturn. The results highlight how populist policies can impose immediate economic costs by creating uncertainty traps, even before implementing institutional changes.

Keywords: Populism; Democracy; Economic growth; Investment; Economic uncertainty (search for similar items in EconPapers)
JEL-codes: E2 N10 O11 O43 O54 P00 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:172:y:2025:i:c:s0014292124002460

DOI: 10.1016/j.euroecorev.2024.104917

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