A Political Theory of Populism

When voters fear that politicians may be influenced or corrupted by the rich elite, signals of integrity are valuable. As a consequence, an honest politician seeking reelection chooses `populist' policies---i.e., policies to the left of the median voter---as a way of signaling that he is not beholden to the interests of the right. Politicians that are influenced by right-wing special interests respond by choosing moderate, or even left-of-center policies. This populist bias of policy is greater when the value of remaining in office is higher for the politician; when there is greater polarization between the policy preferences of the median voter and right-wing special interests; when politicians are perceived as more likely to be corrupt; when there is an intermediate amount of noise in the information that voters receive; when politicians are more forward-looking; and when there is greater uncertainty about the type of the incumbent. We also show that `soft term limits' may exacerbate, rather than reduce, the populist bias of policies.