The Real Cost of Political Polarization: Evidence from the COVID-19 Pandemic
42 Pages Posted: 30 Jun 2020 Last revised: 3 Aug 2020
Date Written: June 29, 2020
While the coronavirus represents a global shock to economic and public health outcomes, there is significant regional heterogeneity within countries. This paper examines the role of political factors in mediating the formation of beliefs among individuals and the adoption of regional policies in the United States. First, using the most comprehensive and nationally representative data on over 47,000 individuals available from March to July, we document that heterogeneity in beliefs about the pandemic and social distancing behaviors is driven primarily by political affiliation. Republicans are 18% less likely to expect significant economic disruption to extend beyond the year and 4% less likely to be very worried about the virus, relative to independents, whereas Democrats are 11% and 6% more likely, respectively. Political affiliation is systematically more predictive than factors directly connected to the disease, including age, county infections, and even employment status. Second, we examine how political partisanship arising from these differences in beliefs about the virus propagate into the adoption of state policies. We find that states with a 10% higher share of Trump voters in 2016 are roughly 18 percentage points less likely to adopt nonessential business closures or stay-at-home orders, although we observe no differences in the incidence of testing or adoption of mask requirements. The adoption of these nonessential business closures and stay-at-home orders are associated with sharp declines in retail visits, as well as a 1-4 percentage point decline in credit card spending and small business revenue growth, relative to trend. Importantly, we find that adoption of mask requirements come with no adverse economic effects, but mitigate the spread of infections at least as much as stay-at-home orders. In sum, our results suggest that political factors behave as a mediating force for local economic activity and that macroeconomic models should include political affiliation as a source of rational inattention to understand the aggregate effects of policy.
Keywords: Beliefs, Coronavirus and COVID-19, Economic Disruption, Expectations, Partisanship, Political Affiliation, Social Distancing
JEL Classification: E66, E71, I12, I31
Suggested Citation: Suggested Citation