Income Inequality and Party Alternation: State-Level Evidence from the United States

Abstract

This paper investigates the relationship between income inequality and political party alternation at the US state level using panel data from 1971 to 2015. We hypothesize that income inequality leads to more regime instability in the form of alternation of governors’ parties. We also test the similar hypothesis that income inequality affects the likelihood of a party gaining two-thirds control over state legislative chambers. The evidence from a panel fixed-effects model suggests that income inequality has a nonlinear relationship with gubernatorial-party instability. We also find a positive linear relationship between income inequality and political party instability when a governor’s party controls the state legislature. Finally, our results suggest that higher income inequality reduces the likelihood that Republicans will gain or maintain a two-thirds majority in either chamber of a state’s legislature, and we find a similar but weaker effect for Democrats in state senates. These results suggest that income inequality at the state level should be examined to understand the fiscal and other economic consequences that arise through its impact on party alternation and legislative control.

Keywords: income inequality, political instability, regime change, party alternation

JEL Classification: D30, H70, P00