Consumer Confidence and Elections

Abstract

An event study analysis is performed on consumer confidence around election times using an effective sample of 84 national elections from 1985 through 2005 in the EU-15 countries. Consumer confidence is measured monthly using identical surveys, which began in 1985 and were gradually adopted by all EU-15 countries. Consumer confidence increases a number of months before the date of national elections and falls subsequently, a pattern that differs depending on whether the incumbent party wins or loses. Consumer confidence is able to predict positively the probability of re-election of the incumbent party and has extra predictive power over and above several macroeconomic variables that are used in the political business cycle literature. A similar behavior characterizes consumer confidence in the United States.

Keywords: consumer confidence, national elections, incumbent party, elections fatigue, macro-economy, fiscal conditions, political business cycle, EU-15, USA

JEL Classification: D10, D72, E61, E62, 051, 052