Economic expectations under the shadow of party polarization: Evidence from 135 government changes

Luis Guirola

European Economic Review, 2025, vol. 171, issue C

Abstract: I study the behavior of economic expectations under political polarization. Using microdata spanning 27 countries over three decades, I follow a difference-in-differences design exploiting 135 government changes to identify the differential update of expectations along partisan lines. I then show that this difference is stronger in more polarized settings; in fact, 57% of its variation can be accounted for by the polarization of political parties. The resulting gap in supporters’ expectations cannot be rationalized as reflecting expectations about the government’s economic policy, suggesting instead that political (non-economic) conflicts contaminate economic expectations.

Keywords: Economic expectations; Political polarization; Political partisanship; Motivated beliefs (search for similar items in EconPapers)
JEL-codes: D12 D14 D84 E71 F34 G01 H12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:171:y:2025:i:c:s0014292124002393

DOI: 10.1016/j.euroecorev.2024.104910

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