Left Behind: Partisan Identity, Stock Market Participation, and Wealth Inequality

Abstract

This paper investigates whether and how opposing partisans differ in their wealth accumulation. Using microdata from a longitudinal U.S. household survey, I document that Democrats are on average 11% less likely than Republicans to participate in the stock market. Moreover, the partisan gap widens sharply, by 13%, under Democratic presidencies, precisely when the stock market returns are substantially higher. This dynamic pattern accounts for more than half of the discrepancy in wealth accumulation between Democrats and Republicans over presidential cycles. Further investigation suggests that these findings are best explained by partisan identity. In the U.K. context, I find similar results on a sample of Labour and Conservative partisans.

Keywords: partisan identity, wealth inequality, political cycles, stock market participation

JEL Classification: D31, G40, G51