American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Demagogues and the Economic Fragility of Democracies
American Economic Review
(pp. 3331–66)
Abstract
We 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.Citation
Bernhardt, 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.20211125Additional Materials
JEL Classification
- 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