Partisanship and Fiscal Policy in Economic Unions: Evidence from US States

Gerald Carlino, Thorsten Drautzburg, Robert Inman and Nicholas Zarra

American Economic Review, 2023, vol. 113, issue 3, 701-37

Abstract: Partisanship of state governors affects the efficacy of US federal fiscal policy. Using close election data, we find partisan differences in the marginal propensity to spend federal intergovernmental transfers: Republican governors spend less than Democratic governors. Correspondingly, Republican-led states have lower debt, (delayed) lower taxes, and initially lower economic activity. A New Keynesian model of partisan states in a monetary union implies sizable aggregate effects: The intergovernmental transfer impact multiplier rises by 0.58 if Republican governors spend like Democratic governors, but due to delayed tax cuts, the long-run multiplier is higher with more Republican governors, generating an intertemporal policy trade-off.

JEL-codes: D72 E12 E62 H71 H72 H74 H77 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States (2021)
Working Paper: Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States (2020)
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DOI: 10.1257/aer.20210147

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