Partisan Bias, Economic Expectations, and Household Spending

49 Pages Posted: 21 Jun 2015 Last revised: 14 Jul 2017

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: July 9, 2017

Abstract

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

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

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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