Rising Populism in Europe: Analysing Possible Effects Between Economic Factors, Shocks, and Populism

Abstract

Over the past decade, populist parties have surged in Europe, forming governments in countries such as Hungary, Italy, and Poland. Defined by Cas Mudde (2004) as entities that position themselves against a corrupt elite, populist parties have significantly influenced political landscapes. Notably, events like Brexit, driven by populist sentiment, have had profound economic repercussions. This study investigates the relationship between the rise of populist parties, economic factors, and the impact of shocks within EU and EFTA member states from 2000 to 2021. Using the Stanford Votes for Populist database and election data from the Political Data Yearbook, this research calculates the percentage of average votes for populist parties across lower house and European Parliament elections. It integrates high-quality macroeconomic and demographic data from Eurostat to explore these dynamics. Ordinary Least Squared (OLS) regression, along with year and country fixed effects, is employed to ensure robustness. Key findings reveal an increasing trend in support for populist parties over time. Significant relationships were found between populist support and factors such as education and unemployment. Positive and negative real GDP shocks per capita also significantly influenced populist votes. Surprisingly, contrary to existing literature, no significant relationship was found between immigration changes and populist support. The study also examined the impact of populist support on economic variables, finding notable but minor effects on unemployment rates and GDP per capita changes. These insights contribute to the broader economic literature on the interplay between populism, economic conditions, and societal shocks. Potential endogeneity issues are acknowledged, with recommendations for future research to adopt alternative identification strategies or instrumental variable regression to enhance causal inference.