Do EU-grants cause or mitigate populism?

Here, in EER, is paper that is interesting in many ways. The authors:
Albanese, Giuseppe, Guglielmo Barone, och Guido de Blasio. "Populist Voting and Losers’ Discontent: Does Redistribution Matter?" European Economic Review 141 (01 januari 2022).
From the abstract:
We show that fiscal redistribution matters by comparing Italian municipalities equally hit by the economic shocks leading to populism but, at the same time, very differently exposed to the generosity of the EU structural funds, because of their locations on the two opposite sides of the geographical border that determines eligibility. Estimates resulting from a spatial regression discontinuity design show that in 2013 general election larger EU financing caused a drop in populism of about 9% of the mean of the dependent variable.
In many ways, the paper is a crystal clear paper with a credible identification strategy. Because transfers from EU structural funds are targeted to "Convergence Objective regions", there are strong discontinuities between municipalities:
and it seems that populist voting is more common in municipalities that do not recieve transfers:
[Parties coded as populist: Movimento Cinque Stelle (Five Stars Movement), Rivoluzione civile (Civil Revolution), Lega Nord (Northern League), Sinistra Ecologia Libert` a (Left Ecology Freedom), Fratelli d’Italia (Brothers of Italy), Partito Democratico (Democratic Party), Centro Democratico (Democratic Centre]

Using a regression discontinuity design, a clear result is identified:
As can be seen, average populist vote share falls from about 61 to 58 percent at the eligibility cutoff. Their conclusion:
We have shown that financial transfers injected by the EU regional policy toward Italian lagging areas have had the ability to reduce the anti-establishment component of populism.
That interpretation is indeed possible. But it seems to me that another interpretation is also possible:

Not receiving EU-grants when neighbouring municipalities (or when some parts of the country) receive grants causes resentment and fuels populism. If there were no structural funds granted to any municipality, how much populism would there be? We do not know.

Thus, despite being a crystal clear paper with a credible causal identification, we do not know if EU-grants cause or mitigate populism - because we do not know the counterfactual.

Graphic non-fiction book on markets and economic freedom

Good news: If things work out as expected, my graphic non-fiction book on markets and economic freedom, released in Swedish last year, will be published in English (with the Swedish publisher Idealistas) later this year.

The book is an illustrated book that explains the benefits of markets and economic freedom. It is based on research but it is non-technical and accessible. The book is similar to Bryan Caplan´s Open borders, but my book is much broader: It deals with the market economy in general, and discusses several misperceptions about the market economy.

The basic message of the book is that the market economy is a tool that helps people work together to achieve their goals. Here is a sample:

I am now raising money for the final stage of the production. Thanks to th Institute for Humane Studies and the Hayek fund, I have a very good translation to work with. The english version will be paperback, rather than hardcover (I actually thinks that woks better for a graphic non-fiction book). Hopefully, you will soon be able to order it on Amazon.

Socialist countries according to Americans

Yougov measures (using sample and weighting to create something they claim to be representative) which countries Americans think are socialist. It may seem like an odd thing to measure, but the results are rather interesting:
Three thoughts:
  1. It is remarkable how the reputation of e.g. Sweden and Denmark lags compared to the actual development.
  2. Compared to democrats, Republicans seem to be much more correct in their ranking of countries .
  3. Democrats seem to confuse socialist countries with countries they like, which suggests they see socialism as something good - while the opposite seems to be the case for republicans.

New paper on how the benefits of economic freedom are distributed

A long time ago, I wanted to examine how (or if) increases in economic freedom correlate with changes in income inequality. As I immediately found out, my friend and colleague Niclas Berggren had already attacked the question in Public Choice back in 1999, although with mixed results based on the limited data that were available at the time.

Together with Therese Nilsson, I published some more robust patterns in European Journal of Political Economy in 2010:
Using the Standardized World Income Inequality Database, we examine if the KOF Index of Globalization and the Economic Freedom Index of the Fraser institute are related to within-country income inequality using panel data covering around 80 countries 1970–2005. Freedom to trade internationally is robustly related to inequality, [...] Reforms towards economic freedom seem to increase inequality mainly in rich countries, and social globalization is more important in less developed countries. Monetary reforms, legal reforms and political globalization do not increase inequality.
Still, the field as a whole was full of conflicting findings, as demonstrated for example by Bennet & Nikolaev in 2016:
we replicate the results from two significant studies using six alternative measures of income inequality for an updated dataset of up to 112 countries over the period 1970–2010. Notably, we use the latest release of the Standardized World Income Inequality Dataset, which allows us to account for the uncertainty of the estimated Gini coefficients. We find that the results of previous studies are sensitive to the choice of country sample, time period and/or inequality measure used.
A couple of years ago - in Ohio of all places - Christian Bjørnskov fiddled around with a new data source: The global consumption and income project, and we started a paper that just came out in Kyklos:
Bergh, Andreas, and Christian Bjørnskov. 2021. "Does Economic Freedom Boost Growth for Everyone?" Kyklos 74(2): 170–86. (April 13, 2021).
The paper essentially does three things
  • We summarize research on specific reforms that increase economic freedom and causally affect income or productivity
  • We note that these reforms have ambiguous implications for inequality as measured by the Gini-coefficient, because they could benefit high-income earners by increasing the returns to capital (at least in the short to medium run), and simultaneously benefit low-income earners by lowering barriers to entry and promoting competition more generally.
  • We estimate the association between economic freeom and income growth for each quintile of the income distribution, and show that economic freedom affects seems to affect all parts of the income distribution roughly equally. However, in democracies, the point estimate is indeed larger for the lowest and the highest quintile:
Potentially, this explains the mixed findings in studies using the Gini-coefficient.
From the paper:
To illustrate the size of our estimated associations, we note first that (as shown in Table 1) incomes grow on average between 8% and 9% over a five-year period in our sample. Based on the estimates in democracies, a one standard-deviation increase in institutional quality is associated with roughly 6 percentage units of higher income growth in quintiles one and five, and roughly 4 percentage units of higher growth in quintiles two, three, and four. While these differences are in line with the idea that economic freedom reforms benefit mainly the top and bottom of the income distribution, the differences between quintiles are far from statistically significant

The Compensation Hypothesis Revisited and Reversed

This note describes how research on the link between economic openness and government size has changed over time. Early interpretations suggested that countries develop welfare states to compensate for volatility caused by economic openness (the compensation hypothesis). Recent findings have cast doubts on this interpretation. For example, more open economies are on average not more volatile, and economic openness does not unambiguously increase the social security demands from voters. Some recent studies suggest that economic openness is particularly beneficial for countries with high taxes and high‐income equality. A re‐interpretation of the compensation hypothesis is thus possible: Through trade, the citizens in large welfare states enjoy some of the benefits associated with cheap labour and high wage dispersion despite their domestic economy being characterized by high real wages, high taxes and a compressed wage distribution.
It's open access!

What the reviewers said about the initial submission:
presents a new and interesting perspective on the cross-country relationship between trade openness and government size and structure
conceptually unpersuasive [R2. Always R2...]

Here, CNN conveys two important messages about Sweden:

Here, CNN conveys two important messages about Sweden:
  1. Sweden differs from other OCED countries not by taxing the firms and the rich higher, but by taxing low-income earners and the middle-class higher.
  2. Most low and middle income earners still think the level of taxation is acceptable when accounting for what the welfare state provides.

Pethokoukis on Sanders and scandinavia at

James Pethokoukis blogs at
Let’s stop pretending that Bernie Sanders wants to duplicate Scandinavia
He writes:
Bernie Sanders supporters are quick to make clear that their guy doesn’t want to turn America into Cuba or Venezuela or the old Soviet Union. By "democratic socialism," the US senator from Vermont means Scandinavia, more or less. And what’s wrong with that? The Nordic nations are pretty nice. Even President Trump has conceded that Norway produces a quality immigrant.
His point is that the scandinavian countries are in many aspects more capitalist and have higher economic freedom than the US, citing my text in the Milken Review.

On globalization and populism in Europe and Fukuyama's commonplace judgment

Here is a summary of a new working paper that I just published with Anders Gustafsson.
We start by citing Francic Fukuyama:
I concur with the commonplace judgment that the rise of populism has been triggered by globalization and the consequent massive increase in inequality in many rich countries
We believe that Fukuyama is right in his description of the "commonplace judgment", and there are some papers that seemingly support that view, such as the Importing Political Polarization paper by Autor et al. These papers typically identify clear causal effects, such as rising trade with China leading to lower employment in US manufacturing and that districts exposed to larger increases in import penetration elected politically more extreme political candidates.
It is, however, a big step to jump from these partial effects to the conclusion that populism has been triggered by globalization. Trade with China may have had more beneficial consequences elsewhere in the US economy, and economic globalization is more than just trade with China. Similar points have also been made by Paul Krugman in a comment on the Autor papers.
One might also worry that papers that identify interesting effects of economc globalization are more likely to be published, while papers with imprecicely estimated zero-effects might not even be completed and/or submitted.
Our working paper checks if there is a pattern across countries such that populist parties have grown more in countries where globalization has increased more. We do so using the KOF globalization index and the compilation of election results for populist parties in Europe produced by Swedish thinktank Timbro. The compilation covers 33 European countries (included when they become politically free) during the period 1980-2018).
As it turns out, the commonplace judgement alluded to by Fukuyama is not visible to the eye when comparing increases in populist parties' voteshares and increases in globalization over different time periods:
A nice feature of Timbro's compilation is the separation of populist parties into right-wing and left-wing populism. Dividing data into 4-year intervals and running regressions using KOF:s measure of economic globalization de facto (that combines trade in goods, services and trade partner diversity with financial globalization) and right-wing populist vote shares with country and time fixed effects reveals no significant correlation between the two. does in fact reveal a significant positive correlation between the two. The reason is, however, that EU-countries have more economic globalization and also more right-wing populism. Once EU-membership is controlled for, there is no positive association between economic globalization and right-wing populism.

Here is what the fixed effect panel regression with right-wing populist voteshares as dependent variable looks like:
[EDIT March 2020: Oops, time-FE was not included in column 1 - fixed now]

In the working paper, we show results also for left-wing populist parties (typically smaller in more globalized countries), random effects instead of country fixed effects (almost identical results) and other types of globalization. The main result is always that once EU-membership is controlled for, more globalized countries if anything have slightly smaller populist parties.
Note also that income inequality (measured using the Gini-coefficient for disposable income taken from Swiid) is typically negatively associated with populism.
Needless to say, these are only correlation. But even if Fukuyama is right that income inequality somehow causes populism, it seems that countries with more inequality for other reasons still end up with less populism on average.
Finally, the fact that EU-membership is associated with about 7 percentage points bigger right-wing populist parties is pretty interesting. It suggests that the European Union does not fully succeed in promoting its official goals (among which we find tolerance, inclusion, justice, non-discrimination as well as social and territorial cohesion and solidarity). The EU-effect is very much in line with a pattern recently noted by Dani Rodrik, that right-wing populists in Europe portray the EU and the elites in Brussels as their enemy, not free trade.