Is Populism Bad for Business? Assessing the Reputational Effect of Populist Incumbents

Abstract

This article seeks to assess whether populist incumbents affect their country’s perceived political stability and business climate. Existing evidence contends that populist governments in European democracies produce more moderate policy outcomes than their agendas would suggest. However, populist parties are still regarded as disruptive, as they are perceived to not conforming to the politics of negotiation and compromise that are central to liberal democracies. Therefore, their presence in government may generate political uncertainty and negatively affect the business climate. Drawing on a sample of 26 European democracies between 1996 and 2016, we find that populist incumbency initially generates market uncertainty, but after about two years in office, the negative effect on the business climate vanishes.