Elections, Political Polarization, and Economic Uncertainty

26 Pages Posted: 19 Oct 2020

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance

Aniket Baksy

London School of Economics; Delhi University Enclave - St Stephen's College

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Jonathan Rodden

Stanford University

Date Written: October 2020

Abstract

We examine patterns of economic policy uncertainty (EPU) around national elections in 23 countries. Uncertainty shows a clear tendency to rise in the months leading up to elections. Average EPU values are 13% higher in the month of and the month prior to an election than in other months of the same national election cycle, conditional on country effects, time effects, and country-specific time trends. In a closer examination of U.S. data, EPU rises by 28% in the month of presidential elections that are close and polarized, as compared to elections that are neither. This pattern suggests that the 2020 US Presidential Election could see a large rise in economic policy uncertainty. It also suggests larger spikes in uncertainty around future elections in other countries that have experienced rising polarization in recent years.

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Suggested Citation

Baker, Scott R. and Baksy, Aniket and Bloom, Nicholas and Davis, Steven J. and Rodden, Jonathan, Elections, Political Polarization, and Economic Uncertainty (October 2020). NBER Working Paper No. w27961, Available at SSRN: https://ssrn.com/abstract=3714453

Scott R. Baker (Contact Author)

Northwestern University, Kellogg School of Management, Department of Finance ( email )

Evanston, IL 60208
United States

Aniket Baksy

London School of Economics ( email )

London, WC2A 2AE
United Kingdom

Delhi University Enclave - St Stephen's College ( email )

University Enclave
Delhi, 110007
India

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven J. Davis

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution

434 Galvez Mall
Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

Jonathan Rodden

Stanford University ( email )

Stanford, CA 94305
United States

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