Partisanship and Fiscal Policy in Economic Unions: Evidence from US States
American Economic Review
vol. 113,
no. 3, March 2023
(pp. 701-37)
Abstract
Partisanship of state governors affects the efficacy of US federal fiscal policy. Using close election data, we find partisan differences in the marginal propensity to spend federal intergovernmental transfers: Republican governors spend less than Democratic governors. Correspondingly, Republican-led states have lower debt, (delayed) lower taxes, and initially lower economic activity. A New Keynesian model of partisan states in a monetary union implies sizable aggregate effects: The intergovernmental transfer impact multiplier rises by 0.58 if Republican governors spend like Democratic governors, but due to delayed tax cuts, the long-run multiplier is higher with more Republican governors, generating an intertemporal policy trade-off.Citation
Carlino, Gerald, Thorsten Drautzburg, Robert Inman, and Nicholas Zarra. 2023. "Partisanship and Fiscal Policy in Economic Unions: Evidence from US States." American Economic Review, 113 (3): 701-37. DOI: 10.1257/aer.20210147Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E62 Fiscal Policy
- H71 State and Local Taxation, Subsidies, and Revenue
- H72 State and Local Budget and Expenditures
- H74 State and Local Borrowing
- H77 Intergovernmental Relations; Federalism; Secession