Partisanship and fiscal policy in economic unions evidence from US states by Gerald Carlino, Thorsten Drautzburg, Robert Inman and Nicholas Zarra
Contributor(s): Carlino, Gerald, A
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Material type: 
ArticleSubject(s): POLITICA FISCAL | PARTIDOS POLITICOS | FEDERALISMO | AUTONOMIA FINANCIERA | POLITICA DE GASTO PUBLICO | ESTADOS UNIDOS | MODELOS ECONOMETRICOS
In:
The American Economic Review v. 113, n. 3, March 2023, p. 701-737Summary: 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.
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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.
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