Blue States and Red States: Business Cycle Divergence and Risk Sharing

27 Pages Posted: 15 Feb 2018 Last revised: 9 Jun 2018

David C. Parsley

Vanderbilt University - Finance

Helen Popper

Santa Clara University - Leavey School of Business - Economics Department

Date Written: May 29, 2018

Abstract

We examine business cycle divergence and risk sharing within the United States and in U.S. 'regions' whose populations have consistently voted either Democrat (Blue) or Republican (Red) in national elections. We find that business cycle divergence across the states is growing, it is larger than across international borders, and it is starkest across Blue and Red regions. At the same time, we find that risk sharing among states is high, even across the political divide. However, the risk sharing mechanisms, including fiscal transfers and migration, differ markedly across the political regions.

Keywords: Economic Integration, Intra-national, Consumption Risk Sharing

JEL Classification: E31, E32, F36, F21, E44

Suggested Citation

Parsley, David C. and Popper, Helen, Blue States and Red States: Business Cycle Divergence and Risk Sharing (May 29, 2018). 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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