Template-type: ReDIF-Paper 1.0
Author-Name: Federico Faveretto
Author-Name: Donato Masciandaro
Title:Financial Inequality, group entitlements and populism 
Abstract: This paper offers a theoretical framework that explains how financial inequality and misbeliefs about group entitlements among voters foster voting in favour of populist parties. When a banking shock occurs in an economy with heterogeneous agents, the central bank independently chooses the optimal degree of monetization to balance financial and monetary instability, while agents choose between a populist party and a classical party to select the degree of bank bailout, which is paid through a proportional tax.  Agents vote according to a behavioural mechanism that we call “democratic rioting”: “aggrieved” agents benefit psychologically from voting for the populist party. The banking shock triggers a higher probability of voting for a populist party in the presence of financial inequality and misbeliefs about group entitlements.
Classification-JEL:D72, D78, E31, E52, E58, E62
Keywords:Financial inequality, monetary policy, populism, banking policy, fiscal policy, central bank independence, political economics
Length: 19 pages 
Number: 1892
Creation-Date: 2018
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1892.pdf
File-Format: application/pdf
File-Size: 504
Handle: RePEc:baf:cbafwp:cbafwp1892