49 Pages Posted: 21 Jun 2015 Last revised: 14 Jul 2017
Date Written: July 9, 2017
Individuals who support the winning candidate in U.S. Presidential elections become significantly more optimistic about the economy after the election, a phenomenon we utilize to measure the effect of partisan bias on economic expectations. The well-documented rise in political polarization among the electorate over the past 20 years has been accompanied by a substantial increase in the effect of partisan bias on economic expectations. The culmination of this trend is the unprecedented 1.8 standard deviation increase in relative economic optimism for those supporting the candidacy of Donald Trump after November 2016. The Trump effect is six times larger than the increase in relative economic optimism for those supporting George W. Bush in 2000. We investigate spending behavior using a variety of measures, and we are unable to find evidence that those most likely to support the winning candidate increased spending after any of the elections. For example, despite the substantial rise in economic expectations among those most likely to support Donald Trump since November 2016, we are unable to detect higher actual spending among this group after the election. Partisan bias is exerting a stronger influence on economic expectations over time, but shifts in economic expectations driven by partisan bias do not appear to affect household spending.
Keywords: consumer confidence, government, economic, policy, sentiment, news, noise, spending, consumption, elections, voting, polarization, Trump, elections
JEL Classification: E20, E21, E60
Suggested Citation: Suggested Citation
Mian, Atif R. and Sufi, Amir and Khoshkhou, Nasim, Partisan Bias, Economic Expectations, and Household Spending (July 9, 2017). Fama-Miller Working Paper; Chicago Booth Research Paper. Available at SSRN: https://ssrn.com/abstract=2620828 or http://dx.doi.org/10.2139/ssrn.2620828