Introduction
Populist leaders frequently challenge unelected institutions, from central banks to professional bureaucracies. Jácome, Magud, Pienknagura and Uribe (first paper below) show that fiscal monetization under past populist governments continues to shape monetary-policy behavior decades later. Morelli, Petrukhin and Vannoni (second paper below) examine a different institutional safeguard, finding that independent civil services can cushion the economic costs associated with populist governance. Together, the papers suggest that institutional independence is not merely a procedural constraint, instead it may serve as economic insurance against policy excesses.
Central banks under the shadow of fiscal populism
Luis I. Jácome, Nicolás E. Magud, Samuel Pienknagura, and Martín Uribe examine whether populist governments encourage deficit monetization and whether those historical experiences continue to influence monetary policy today. The authors combine a simple New Keynesian model of “experienced learning” ((the legacy of populism and inflation) with two empirical exercises:
- Using annual data for 47 advanced and emerging economies from 1960–2008, they apply local projections and a difference-in-differences version of local projections to estimate the relationships between populist governments, central-bank lending to government, and inflation.
- Using quarterly data for 32 inflation-targeting countries through 2023, they estimate augmented Taylor rules to test whether central banks’ interest-rate responses vary with historical exposure to populism, deficit monetization, and high inflation.
Populist leaders are classified by their rhetoric rather than economic outcomes, and the authors distinguish between left- and right-wing populism. They emphasize that the estimates identify associations rather than definitive causal effects.
Findings
- Left-wing populism is associated with greater deficit monetization. Central-bank lending to government rises cumulatively by an estimated 300% over the ten years following the arrival of a left-wing populist government. No statistically significant increase is found for right-wing populist governments.
- Deficit monetization is linked to higher inflation. A one-standard-deviation increase in central-bank credit is associated with an inflation increase peaking at approximately one percentage point and a cumulative price-level increase of around 4% over ten years.
- The effects persist beyond the populist government’s tenure. Inflation-targeting central banks in countries with histories of left-wing populism and deficit monetization respond more strongly when expected inflation exceeds the target.
- Past inflation does not fully explain the result. The stronger monetary-policy response remains even after the authors control for countries’ historical inflation experiences.
Fiscal Populism and Monetary Policy Rules
Authors: Luis I. Jácome, Nicolás E. Magud, Samuel Pienknagura, Martín Uribe
From: Georgetown University, International Monetary Fund, Columbia University
How Independent Civil Services Buffer the Economic Costs of Populism
Massimo Morelli, Dmitrii Petrukhin, and Matia Vannoni ask whether an independent, professional bureaucracy can mitigate the adverse economic effects associated with populist governments. The authors use two complementary empirical approaches:
- Cross-country analysis: They apply synthetic-control methods to populist takeovers, comparing each affected country with a constructed non-populist counterfactual. They then divide the cases according to the strength of the pre-existing bureaucracy, measured using indicators of impartial administration, merit-based recruitment, and bureaucratic remuneration.
- U.S. state analysis: They construct a state-year panel covering 1929–2023. Populism is measured by applying a large language model to 3,355 governors’ State of the State speeches, while bureaucratic independence is proxied by whether civil-service protections are in force.
The baseline regressions include state and year fixed effects, state-specific trends, political-party indicators, and speech controls. A post-2010 dynamic difference-in-differences analysis provides additional evidence on what happens after states move into high-populism governance.
Findings
- Populist takeovers are followed by lower GDP per capita, but the cross-country decline is smaller where bureaucratic institutions were stronger before the takeover.
- Bureaucratic independence and impartiality, rather than administrative size or remuneration alone, appear to provide the principal protective effect.
- In U.S. states without operative civil-service protections, highly populist governors are associated with approximately 3.8% lower per-capita income.
- The cross-country evidence is suggestive because of the small number of episodes, and the bureaucratic buffer may weaken over time; nevertheless, the more extensive U.S. evidence is robust across alternative measures and specifications.
Do Not Drain The Swamp! Populism, Bureaucracy and Economic Performance
Authors: Massimo Morelli, Dmitrii Petrukhin, Matia Vannoni
From: Bocconi University, University of Cambridge, King’s College London
