Blue States and Red States: GDP Synchronicity and Risk Sharing Channels
33 Pages Posted: 15 Feb 2018 Last revised: 20 Aug 2019
Date Written: August 19, 2019
We examine state GDP comovement and consumption risk-sharing channels within the United States as a whole, and among states whose populations have voted consistently Democrat (Blue) or Republican (Red) in national elections. We document three facts: (1) state GDP growth is asynchronous, and Blue and Red states are particularly out of sync; (2) at the same time, interstate consumption risk-sharing is very high – it is high even across the political divide, and it is high even where the role of fiscal flows is minimal; and (3) the channels of risk sharing across Blue, Red, and Swing states are quite different.
Keywords: monetary union, consumption risk-sharing, economic and political divergence
JEL Classification: F45, F42, F33, F02
Suggested Citation: Suggested Citation