Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States

Gerald Carlino, Thorsten Drautzburg, Robert P. Inman and Nicholas Zarra

No 28425, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Partisanship of state level politicians affect the impact of federal fiscal policy in the U.S. Using data from close gubernatorial elections, we find partisan differences in the marginal propensity to spend federal transfers since the early 1980's: Republican governors spend less. A New Keynesian model of partisan states in a monetary union implies sizable aggregate income effects from these partisan differences. First, the transfer multiplier would rise by 0.60 if Republican governors were to spend as much from federal aid as do Democratic governors. Second, the observed changes in the share of Republican governors imply variation in the fiscal multiplier of 0.40. Local projection regressions support this prediction.

JEL-codes: C24 E62 F45 H72 H74 H77 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-mac and nep-pol
Note: EFG PE POL
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Citations: View citations in EconPapers (3)

Published as Gerald Carlino & Thorsten Drautzburg & Robert Inman & Nicholas Zarra, 2023. "Partisanship and Fiscal Policy in Economic Unions: Evidence from US States," American Economic Review, vol 113(3), pages 701-737.

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Related works:
Journal Article: Partisanship and Fiscal Policy in Economic Unions: Evidence from US States (2023)
Working Paper: Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States (2020)
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