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

Gerald Carlino, Thorsten Drautzburg and Robert P. Inman
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Robert P. Inman: https://www.philadelphiafed.org/our-people/thorsten-drautzburg

No 20-20, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: 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: partisanship; flypaper effect; intergovernmental transfers; fiscal multiplier; monetary unions; regression discontinuity. (search for similar items in EconPapers)
JEL-codes: C24 E62 F45 H72 H77 (search for similar items in EconPapers)
Pages: 56
Date: 2020-06-01
New Economics Papers: this item is included in nep-mac and nep-pol
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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 (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:88106

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DOI: 10.21799/frbp.wp.2020.20

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