Is Latin American Inflation Linked to Populist Regimes?

Latin American countries have had a history of recurring bouts of hyperinflation, which have been as severe as they have been frequent. It is widely believed that the overriding reason for this has been populist macroeconomic policies, especially ones by democratically elected regimes. Populism has been a prominent feature of Latin American politics and economics. It is traditionally understood as a form of “personalistic leadership” that mobilized diverse popular constituencies behind statist, nationalistic and redistributive development models. A closely related concept is that of economic populism, which entails economic policies aimed at redistributing income and typically marked by fiscal indiscipline. Despite being regarded as leftist in nature, economic populism has been practiced by both left- and right-wing regimes in Latin America. The former aims to redistribute wages more equitably whereas the latter is closely linked to developmentalism wherein the government gives massive subsidies to businesses to enable them to grow and expand output and employment. Policies usually involve increased wages for workers in both the public and private sectors, increased employment in the public sector, nationalization of industries, increased tax breaks and subsidies (to the private sector), and artificial valuation of the currency. Also, money creation in order to finance the increased government spending worsens inflation. Economic populism is seen as the main culprit behind hyperinflation in Latin American countries. Most political economists believe that the nature of populist...

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