Party Influence in Congress and the Economy

Erik Snowberg, Justin Wolfers and Eric Zitzewitz

No 12751, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: To understand the extent to which partisan majorities in Congress influence economic policy, we compare financial market responses in recent midterm elections to Presidential elections. We use prediction markets tracking election outcomes as a means of precisely timing and calibrating the arrival of news, allowing substantially more precise estimates than a traditional event study methodology. We find that equity values, oil prices, and Treasury yields are slightly higher with Republican majorities in Congress, and that a switch in the majority party in a chamber of Congress has an impact that is only 10-30 percent of that of the Presidency. We also find evidence inconsistent with the popular view that divided government is better for equities, finding instead that equity valuations increase monotonically, albeit slightly, with the degree of Republican control.

JEL-codes: D72 G13 G14 H0 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-cdm, nep-pbe and nep-pol
Note: AP EFG LS PE POL
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Citations: View citations in EconPapers (9)

Published as Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2007. "Party Influence in Congress and the Economy," International Quarterly Journal of Political Science, now publishers, vol. 2(3), pages 277-286, August.

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