Populism, Democratic Institutions, and Economic Performance in Europe

Abstract

The paper examines the connection between populism and quality of democratic institutions and economic performance in Europe. The analysis uses a comparative country-year panel (2000-2024) with country- and year-fixed effects to differentiate between populist electoral strength (vote share) and populist incumbency (government participation). The findings show that populist involvement in government is associated with poorer medium-run economic performance, including lower GDP growth and investment, and greater macroeconomic stress, such as increased unemployment and government debt. Populist incumbency is also associated with worse institutional performance, especially in measures of the rule of law, executive checks balances, and media freedom. These associations are mediated by institutional power: more robust democratic institutions soften the negative relationship between populist leadership and economy, which aligns with credibility- and uncertainty-based institutionalizations that enhance investor confidence and policy permanence. The results emphasize institutional resilience as the key to reducing the economic costs of populist rule in Europe.

Keywords:

Populism; democratic backsliding; rule of law; economic performance; Europe; fixed effects; policy uncertainty