Capitalizing on Partisan Politics? The Political Economy of
Sector-Specific Redistribution in Germany

43 Pages Posted: 28 Feb 2007 Last revised: 29 May 2013

Michael M. Bechtel

Washington University in Saint Louis

Roland Füss

University of St. Gallen - School of Finance

Date Written: April 9, 2008

Abstract

This paper examines the redistributive effects of government partisanship on economic sectors. Based on a rational partisan perspective and policy-induced campaign contribution models we expect that once in office, ideologically different parties deliver favourable policies to different industries, in order to enrich their electoral and sector-specific supporters. Using daily stock market data, we empirically evaluate whether and how the mean and the volatility of returns to four important economic sectors co-varied with the electoral prospects of a right-left-leaning coalition in Germany from 1991 to 2005. This sheds light on the magnitude of sector-specific redistribution to be expected from ideologically different governments holding office. Our estimates show that the mean and the volatility of defence and pharmaceutical sector returns increase if a right-leaning government is becoming more likely to win the upcoming election. In contrast, an increase in the probability of a left-leaning government triggers higher returns to the alternative energy sector and increases the volatility of consumer sector returns. These findings suggest that parties indeed redistribute across industries.

Keywords: Government partisanship, stock market performance, industrial sectors, German federal elections, GARCH modeling, redistribution

JEL Classification: C12, G12, G38

Suggested Citation

Bechtel, Michael M. and Füss, Roland, Capitalizing on Partisan Politics? The Political Economy of Sector-Specific Redistribution in Germany (April 9, 2008). Journal of Money, Credit, and Banking, Vol. 42, No. 2-3, pp. 203-235, 2010. Available at SSRN: https://ssrn.com/abstract=965190

Michael M. Bechtel (Contact Author)

Washington University in Saint Louis ( email )

Campus Box 1063
One Brookings Drive
Saint Louis, MO 63130-4899
United States

Roland Füss

University of St. Gallen - School of Finance ( email )

Rosenbergstrasse 52
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

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