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Partisan Conflict and Private Investment

Marina Azzimonti ()

No 21273, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: American politics have been characterized by a high degree of partisan conflict in recent years. Combined with a divided government, this has led not only to significant Congressional gridlock, but also to spells of high fiscal policy uncertainty. The unusually slow recovery from the Great Recession during the same period suggests the possibility that the two phenomena may be related. In this paper, I investigate the hypothesis that political discord depresses private investment. To this end, I construct a novel high- frequency indicator of partisan conflict. The partisan conflict index (PCI) uses a semantic search methodology to measure the frequency of newspaper articles reporting lawmakers' disagreement about policy. I find a negative relationship between the PCI and aggregate investment in the US. Moreover, the decline is persistent, which may help explain the slow recovery observed since the 2007 recession ended. Partisan conflict is also associated with lower investment rates at the firm level, particularly in firms that rely heavily on government spending and in those who actively engage in campaign contributions through PACs.

JEL-codes: C11 C26 E02 E22 E32 E62 H3 P48 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pol
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Published as Marina Azzimonti, 2017. "Partisan Conflict and Private Investment," Journal of Monetary Economics, .

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