Blue States and Red States: GDP Comovement and Consumption Risk Sharing

32 Pages Posted: 15 Feb 2018

See all articles by David C. Parsley

David C. Parsley

Vanderbilt University - Finance

Helen Popper

Santa Clara University - Leavey School of Business - Economics Department

Date Written: April 24, 2019

Abstract

We examine GDP comovement and consumption risk-sharing channels within the United States as a whole and in U.S. 'regions' whose populations have voted consistently Democrat (Blue) or Republican (Red) in national elections. We find that (1) state GDPs hardly comove, and the comovement is particularly low across the Blue and Red regions; (2) those regions' consumption risk sharing mechanisms differ markedly; but (3) accounting for migration and other channels overall interstate consumption risk sharing is high: it is high even across the political divide, and even where the role of fiscal flows is minimal. The evidence suggests that political differences do not necessarily prevent successful participation in a monetary and economic union.

Keywords: monetary union, consumption risk-sharing, economic and political divergence

JEL Classification: F45, F42, F33, F02

Suggested Citation

Parsley, David C. and Popper, Helen, Blue States and Red States: GDP Comovement and Consumption Risk Sharing (April 24, 2019). Vanderbilt Owen Graduate School of Management Research Paper. Available at SSRN: https://ssrn.com/abstract=3117556 or http://dx.doi.org/10.2139/ssrn.3117556

David C. Parsley

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)

Helen Popper (Contact Author)

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-6952 (Phone)
(408) 554-2331 (Fax)

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