Government Economic Policy, Sentiments, and Consumption

51 Pages Posted: 21 Jun 2015  

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi

University of Chicago - Booth School of Business; NBER

Nasim Khoshkhou

Argus Information and Advisory Services

Multiple version iconThere are 2 versions of this paper

Date Written: June 19, 2015

Abstract

We examine how consumption responds to changes in sentiment regarding government economic policy using cross-sectional variation across counties in the ideological predisposition of constituents. When the incumbent party loses a presidential election, individuals in counties more ideologically predisposed toward the losing party experience a dramatic and discontinuous relative decrease in optimism on government economic policy. Using the interaction of constituent ideology in a county with election timing as an instrument, we estimate the impact of government policy sentiment shocks on consumer spending, and we find a very small effect that cannot be statistically distinguished from zero. The small magnitude of the effect is estimated precisely. For example, we can reject the hypothesis that pessimism regarding government economic policy effectiveness during the Great Recession had as large an effect on consumption as the negative shock to household net worth coming from the collapse in house prices.

Keywords: consumer confidence, government, economic, policy, sentiment, news, noise, spending, consumption, elections, voting

JEL Classification: E20, E21, E60

Suggested Citation

Mian, Atif R. and Sufi, Amir and Khoshkhou, Nasim, Government Economic Policy, Sentiments, and Consumption (June 19, 2015). 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

Atif R. Mian

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Sufi (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nasim Khoshkhou

Argus Information and Advisory Services ( email )

1 N Lexington Avenue
17th Floor
White Plains, NY 10601
United States

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