Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States
Gerald Carlino (),
Robert P. Inman and
No 20-20, Working Papers from Federal Reserve Bank of Philadelphia
In economic unions the ﬁscal authority consists not of one, but many governments. We analyze whether partisanship of state-level politicians aﬀects federal policies, such as ﬁscal stimulus in the U.S. Using data from close elections, we ﬁnd partisan diﬀerences in the marginal propensity to spend federal transfers: Republican governors spend less. This partisan diﬀerence has tended to increase with measures of polarization. We quantify the aggregate eﬀects in a New Keynesian model of Republican and Democratic states in a monetary union: Lowering partisan diﬀerences to levels prevailing during less polarized times increases the transfer multiplier by 0.30. The observed changes in the share of Republican governors lead to variation in the multiplier of 0.20 in the model. Local projection methods support this prediction.
Keywords: intergovernmental transfers; monetary union; ﬁscal multiplier; partisanship; regression discontinuity.; ﬂypaper eﬀect (search for similar items in EconPapers)
JEL-codes: H72 H77 F45 E62 C24 (search for similar items in EconPapers)
Date: 2020-06-01, Revised 2020-06-01
New Economics Papers: this item is included in nep-mac and nep-pol
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