Top-Down Identity Politics: Theory and Its Effect on Trade Policy

• In Event: Talking About Markets

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 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 provide evidence consistent with the mechanisms described herein using data for the U.S. for the period 1993-2019. These 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.

Author

• Carlos Felipe Balcazar, New York University