Populism in general equilibrium :indirect efects on political support

Advisor: Eduardo Zilberman

Co-advisor: Tiago Couto Berriel

We present a version of the standard general equilibrium model with heterogenous agents and incomplete markets to address matters of populism and political support of governments. The novelty is to assume that governments may expropriate part of the resources in the economy. We highlight a new mecanism in which a populist government can obtain the approval necessary to maintain power. Transfers to poorest/less productive households increases the equilibrium interest rates, by reducing precautionary savings, benefiting rich capital holders and creating a coalition between them. Further, we calibrate the model to a standard U.S economy and conduct some comparative statics in key parameters to address the likelihood of such arrangement.