American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
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