Populism and income redistribution

Populist governments might attempt to favor workers in the short-run by encouraging nominal wage increases. But if the real wage can only be affected by productivity in the long-run, these redistributive attempts would lead to inflation and no real improvement. Based on this widely accepted argument, this paper proposes a simple method to disentangle productivity from, what is here called, populist shocks. In particular, a Bivariate Structural Vector Autoregressive analysis with nominal and real wages, and where long-run restrictions are imposed, can be used to identify these two structural innovations. The methodology is applied to Argentina using data from 1865 to 1974 to identify populist regimes.