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24-10-2021

The role of economic uncertainty in the rise of EU populism

Author: Giray Gozgor

Published in: Public Choice | Issue 1-2/2022

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Abstract

Economic interests are assumed to be the leading driver of political preferences, and various empirical studies have examined how economic conditions affect political views and voting behavior. Meanwhile, populism is on the rise in European Union (EU) member countries. Against that backdrop, this paper aims to examine the effect of economic uncertainty on populist voting behavior based on a panel dataset of 24 EU countries from 1980 to 2020. We focus on whether total populist, right-wing populist, and left-wing populist votes are affected by a new indicator of economic uncertainty, namely, the World Uncertainty Index (WUI). Relying on a fixed-effects, bias-corrected least squares dummy variable estimator and instrumental variable estimations, we show that a higher WUI increases total populism and right-wing populist voting behavior. The baseline results remain consistent when dealing with potential issues of endogeneity and reverse causality, addressing omitted variable bias, and excluding outliers.

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See Margalit (2019b) for a recent literature review of the definitions and causes of populism.

For example, for theoretical models, see Acemoglu Egorov and Sonin (2013), Berliant and Konishi (2005), Binswanger and Prüfer (2012), Maskin and Tirole (2004), Prato and Wolton (2018), and Wintrobe (2018). Following the model of Berliant and Konishi (2005), Kishishita (2018) also shows that greater uncertainty rather than risk is a leading driver of populist support.

Other contributions to the literature have studied the impact of economic shocks on individual-level voting behavior (e.g., Ahlquist, Copelovitch and Walter 2020). However, most of those analyses have explored the impact of economic uncertainty shocks on political attitudes, without investigating actual voting behavior. For more discussion, see Margalit (2019b).

Note that more economic uncertainty tends to reduce the rates of participation in elections (Guiso et al., 2019). However, evidence on the impact of economic uncertainty shocks on turnout remains scarce.

It is worth recalling Frank Knight’s distinction between risk (measurable in principle) and uncertainty (not reducible to explicit probabilities). The WUI captures uncertainty but not risk, because it is a country analyst’s subjective assessment of economic conditions rather than a quantifiable measure of the distribution of income outcomes.

Following the previous literature (e.g., Klomp and de Haan 2013; Martins and Veiga 2013; Veiga and Veiga 2007, 2013), we entered lagged independent variables. However, some studies (e.g., Klomp and de Haan 2013) also account for an election month. For instance, if the month of an election occurs in the first semester (between January and June), then the observations entered are those for year t − 1. If the month of an election occurs in the second semester (between July and December), then the data used are those for year t. Our main findings are robust to the consideration of those different model specifications.

Hence, we follow the fixed-effects IV estimation procedure. See the ivreg210 Stata package for details.

The WUI data capture the average of 2020Q1 and 2020Q2. For the other years, it is the average of all quarters.

The countries include Austria (1980–2020), Belgium (1980–2020), Bulgaria (1990–2020), Croatia (2001–2020), the Czech Republic (1993–2020), Denmark (1980–2020), Finland (1980–2020), France (1980–2020), Germany (1980–2020), Greece (1980–2020), Hungary (1990–2020), Ireland (1980–2020), Italy (1980–2020), Latvia (1993–2020), Lithuania (1993–2020), the Netherlands (1980–2020), Poland (1991–2020), Portugal (1980–2020), Romania (1990–2020), the Slovak Republic (1993–2020), Slovenia (1993–2020), Spain (1980–2020), Sweden (1980–2020), and the United Kingdom (1980–2020). Unfortunately, no populist votes or WUIs are reported for Cyprus, Estonia, Luxembourg, or Malta; therefore, we exclude them from the empirical analysis.

For instance, Timbro (2020) codes Freiheitliche Partei Österreichs (FPO), Bündnis Zukunft Österreich (BZÖ), and Free Party Salzburg (FPS) as right-wing populism and G!LT as left-wing populism. However, Populist 2.0 does not identify any left-wing populist party in Austria but includes another right-wing populist party (Team Stronach) and a personalized populist party (Liste Dr. Hans-Peter Martin). In Belgium, Timbro (2020) identifies Vlaams Belang (VB) and Front Nationale (FN) as right-wing populist. However, Populist 2.0 categorizes the People's Party (Pp) and List Dedecker (LDD) as populist. For other countries, see the user guides of these datasets.

Comparable data from 1980 to 2015 confirm the argument. The average total populist vote is 13.62% in the Timbro dataset; however, it is 8.9% in the PopuList 2.0 dataset. The difference arises mainly from the left-wing populist vote, whose average is 6.1% in Timbro (2020) and 1.95% in the PopuList 2.0 dataset (see Online Appendix Tables 1 and 2). The correlation between right-wing populist voting measures is 0.88, but the correlation between left-wing populist voting measures is 0.34. The correlation between total populist voting measures is 0.67.

From 1981 to 2007, the French Communist Party could not be labeled a populist party. However, from 2009 to 2020, it approached the Front de Gauche (the Left Front). The Front de Gauche is a populist party; therefore, the French Communist party has been populist since 2009.

A recent issue of The Independent Review contains a symposium on populism, emphasizing its many and varied definitions (Colantone and Stanig 2019; Edwards 2019; Guriev and Treisman 2019; Margalit 2019b).

Consistent with Ahir, Bloom and Furceri (2018), we observe statistically significant correlations of variations in growth rates and unemployment rates with the WUI in our EU sample. Thus, the WUI is associated with changes in the economic environment across the business cycle.

We also enter dummy variables identifying parliamentary systems, presidential systems, and election timing. The results are robust to the inclusion of those indicators.

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Title: The role of economic uncertainty in the rise of EU populism
Author: Giray Gozgor
Publication date: 24-10-2021
Publisher: Springer US
Published in: Public Choice / Issue 1-2/2022
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI: https://doi.org/10.1007/s11127-021-00933-7

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