The Political Economy of Extremism and Moderation

What drives ideological extremism? And why is ideological polarization politically dysfunctional? As McCarty, Poole, and Rosenthal’s (2006) study of the U.S. and Dalton’s (2006) comparative research suggest, this destabilizing force can be found in different institutional settings. Looking for cross-institutional factors, I explore the impact of increasing income inequality on ideological polarization. But in contrast to other research, I explain not only the role of inequality in creating ideological separation but also why it leads polarized voters and elites to adopt an “extremist” style that inhibits reasonable compromise. The standard spatial analysis of ideology, I argue, fails to explain the extremist style of polarized politics. In standard political economy models (e.g., Meltzer and Richard 1981), on the other hand, the rich cannot even express a preference for upward redistribution. In short, the standard approaches do not explain why there are extremists at both ends of the income distribution and why their behavior is distinct. My research is anchored in the bargaining model of redistribution developed in Aumann and Kurz (1977). I provide a unified explanation of ideological preference that links income distribution both to moderation and to extremism. In the model, all actors are endowed with the same fundamental preferences. There is no need for ad hoc assumptions about the existence of actors with extremist personalities. The key point is that increases in inequality expose richer voters to the increased risk of downward redistribution and poorer voters to more opportunities for redistribution. Lower income voters become “bolder” in their demands, while upper income voters become more resistant to those demands. I test the hypotheses derived from this model using the European Election Studies to explore the empirical link between inequality and support for extremist parties and changes in party ideologies.