Political accountability for populist policies: Lessons from the world’s largest democracy

Gaurav Khanna and Priya Mukherjee

Journal of Public Economics, 2023, vol. 219, issue C

Abstract: We know little about the electoral effects of policies with broad appeal that are implemented by popular leaders, but which have adverse economic effects. We analyze voter behavior following one such policy implemented in the world’s largest democracy – India’s 2016 ‘Demonetization,’ which unexpectedly made 86% of the currency-in-circulation redundant overnight, and led to severe cash shortages and economic hardship in subsequent months. Yet, the policy appealed to a majority of voters, and was framed as one that would combat corruption. We leverage a discontinuity in the number of bank branches arising from a nationwide, district-level bank expansion policy. Using the fact that districts with fewer banks had greater cash shortages, we identify the impacts of demonetization’s economic severity at the bank-expansion cutoff. Regression discontinuity estimates show that following demonetization, voters in places with more severe demonetization had less favorable views of the policy. Using a difference-in-discontinuity design, we find that the ruling party performed relatively worse in regions with more severe demonetization, receiving a 4.7 percentage point lower fraction of votes, and were relatively less likely to win seats in state legislatures. Areas that were historically strongly aligned with the ruling party were nearly unresponsive in voting behavior, despite having a less favorable view of the policy itself.

Keywords: Elections; Voter behavior; Demonetization (search for similar items in EconPapers)
JEL-codes: D72 E51 O16 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:219:y:2023:i:c:s0047272723000014

DOI: 10.1016/j.jpubeco.2023.104819

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