Monday, May 10
Carlos Felipe Balcazar (NYU), “Top-down identity politics: theory and its effect on trade policy”
Abstract: I characterize a political leader’s incentives to influence voters’ identity by using divisive cues. I argue that these cues can change the political equilibrium by affecting the payoffs associated with policy choices, increasing the likelihood of electing a divisive candidate into office. I test this argument in a formal model of tariff formation. In it I show that the losers from international competition are susceptible to divisive cues, particularly when their material well-being declines. When cues are successful disgruntled voters display in-group attitudes, increasing protectionism at the expense of social welfare in equilibrium. Importantly, I find that trade shocks need not to be substantive to see the rise of identity politics in equilibrium. I show that the likelihood of observing divisive cues increases when inequality grows faster than average wage growth; I find that this is the result of a high import price pass-through. My findings complement demand-side explanations about populism in a globalized world. They also contribute to supply-side theories of populism based on the role of institutional constraints insofar as institutions affect cues’ effectiveness but do not suppress populist identity politics.