Assessing the economic performance of a government characterised by populist rhetoric in Hungary: A synthetic control approach

The literature on the growth effects of populism remains inconclusive. This is due to severe methodological difficulties mostly driven by country heterogeneity and because of the difficulty in conceptualising populism. In this paper, we try to overcome the limitation by looking at the Hungarian example, chosen as a representative example of right-wing populist rhetoric in Europe with consistent data availability. The paper approaches this problem in two parts, following some of the most recent trends in policy evaluation. In the first part, it quantitatively analyses Hungary’s Prime Minister’s public speeches and different Eurostat indicators. The analysis shows a disconnection between implemented policymaking and logical economic and political threats. Overall, we see that the Hungarian democratic transition is impeded by societal fears and by some real problems in knowing the policies that would fully foster this transition. This creates in turn a sense of urgency that is compensated by a strong leader that uses it to foster cronyism and neo-feudalism. In the second and deductive part, the paper uses the Synthetic Control Method (SCM) of Abadie et al. (2010) to give quantitative substance to this hypothesis. It constructs a counterfactual for Hungary between 2010 and 2019 with countries with similar political and economic characteristics. We find that growth effects from populist rhetoric are negative. We estimate that without populist rhetoric and policymaking, per capita incomes would have been, on average, approximately 10% higher over the selected period.