Government ideology and economic policy-making in the United States—a survey

Abstract

This paper describes the influence of government ideology on economic policy-making in the United States. I review studies using data for the national, state and local levels and elaborate on checks and balances, especially divided government, measurement of government ideology and empirical strategies to identify causal effects. Many studies conclude that parties do matter in the United States. Democratic presidents generate, for example, higher rates of economic growth than Republican presidents, but these studies using data for the national level do not identify causal effects. Ideology-induced policies are prevalent at the state level: Democratic governors implement somewhat more expansionary and liberal policies than Republican governors. At the local level, government ideology hardly influences economic policy-making at all. How growing political polarization and demographic change will influence the effects of government ideology on economic policy-making will be an important issue for future research.

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Fig. 1

Sources: Atkinson et al. (2011) and Saez and Zucman (2016)

Fig. 2

Source: Beland and Oloomi (2017)

Notes

  1. 1.

    By using Gallup survey data collected over the period July 2015 to August 2016, Rothwell (2016) shows that variables such as racial isolation help to predict views of Trump, but not of other Republican presidential candidates. On the 2016 Republican presidential primaries, see Kurrild-Klitgaard (2017).

  2. 2.

    Germany is a case in point. Government ideology did not predict economic policies at the national level over the 1950–2015 period. Leftwing governments implemented, however, more expansionary policies than rightwing governments in the 1970s and 1980s (e.g., De Haan and Zelhorst 1993; Belke 2000; Potrafke 2012; Kauder and Potrafke 2016). Commentators believed that globalization restricted partisan politics in industrialized countries, but there is hardly any evidence for that view (Potrafke 2009). New studies find evidence for ideology-induced effects in European Union countries (Jäger 2017).

  3. 3.

    For surveys of empirical studies see, for example, Schmidt (1996) and Potrafke (2017). On election-motivated politicians and political business cycles, see the surveys of De Haan and Klomp (2013) and Dubois (2016). Scholars also examine how the political ideology of the median voter is related to policy outcomes such as social expenditures (Congleton and Bose 2010; Congleton et al. 2017).

  4. 4.

    Other studies—which I do not discuss in more detail—elaborate on partisan politics and political alignment between ideology-induced politicians across the federal, state and local levels (e.g., Levitt and Snyder 1995; Krause and Bowman 2005; Ansolabehere and Snyder 2006; Larcinese et al. 2006; Berry et al. 2010; Albouy 2013; Young and Sobel 2013; Goetzke et al. 2017; Hankins et al. 2017).

  5. 5.

    Kane (2017) maintains that the presidential growth gap becomes smaller when different lags of the government ideology variables are entered.

  6. 6.

    I do not elaborate on these differences in more detail here. Ideology-induced policies may also be adopted within the legislative period between elections and expansionary policies before elections, government ideology notwithstanding. See Frey and Schneider (1978a, b).

  7. 7.

    Grier (2008) attempts to address the endogeneity concern of the Democratic president variable by creating a 12-observation sample to predict whether the Democratic candidate will win the election (the 1961–2004 period includes 12 presidential elections). The predicted probability is then used as an instrument for the Democratic president variable in the GDP regressions.

  8. 8.

    See also Snowberg et al. (2007b).

  9. 9.

    Some studies exploit cross-sectional variation across US states to examine ideology-induced effects: Monogan (2013) and Soss et al. (2001) include government ideology as an independent variable to explain immigrant policies and welfare policies. Garand (1988) uses univariate time series analysis for the 50 states over the 1945–1984 period and concludes that government ideology overall did not influence the size of government in the US sates.

  10. 10.

    Scholars also exploit close vote margins of US House and Senate elections to explain politicians’ policy preferences (e.g., Lee et al. 2004; Albouy 2011; Fredriksson and Wang 2011). Downey (2017) uses close congressional election outcomes to predict indictments of labor union officers.

  11. 11.

    The first study to employ RDD at the state level is Leigh (2008). The threshold of narrow majorities for governor’s elections is, however, quite all-encompassing: the author excludes elections in which one party won 80% or more of the vote and in which one of the two top candidates was an independent. The dummy variable for Democrat governors does not turn out to be statistically significant for 26 of the 32 dependent variables he studies. The results show that minimum wages, post-tax incomes and welfare caseloads were higher, but that incarceration rates, post-tax inequality and unemployment rates were lower under Democrat than under Republican governors.

  12. 12.

    On the extent to which political representatives’ preferences are decoupled from citizens’ preferences see, for example, Portmann et al. (2012) and Potrafke (2013).

  13. 13.

    Ferreira and Gyourko (2014) also examine how the gender of the mayors influences policies.

  14. 14.

    The vote share for Barack Obama in the 2008 presidential elections was correlated with city spending (Einstein and Kogan 2016). For example, city spending on police, fire, public transit and parks and recreation was higher in places in which the 2008 Democratic presidential vote share was large.

  15. 15.

    Einstein and Glick (2016) interviewed 72 American mayors asking for their preferences regarding income redistribution. The results suggest that Democratic mayors are more inclined towards income redistribution than Republican mayors. The sample includes, for example, 16 of the 46 mayors of cities with more than 400,000 inhabitants in the United States.

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Acknowledgements

I am grateful for comments from David Agrawal, Larry Bartels, Louis-Phillippe Beland, Christian Bjørnskov, Dodge Cahan, Devin Caughey, Leandro De Magalhaes, Axel Dreher, Per Fredriksson, Stefanie Gäbler, Roger Gordon, James Hamilton, Gary Jacobson, Björn Kauder, Pierre Mandon, Florian Neumeier, Lubos Pastor, Andrew Pickering, James Rockey, Christoph Schinke, Cameron Shelton, William F. Shughart II, Erik Snowberg, Heinrich Ursprung, and two anonymous referees, Christopher Costea, Kristin Fischer and Alexander van Roessel for excellent research assistance, and Lisa Giani-Contini for proof-reading.

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Potrafke, N. Government ideology and economic policy-making in the United States—a survey. Public Choice 174, 145–207 (2018). https://doi.org/10.1007/s11127-017-0491-3

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Keywords

  • Government ideology
  • Economic policy-making
  • Partisan politics
  • United States
  • Democrats
  • Republicans
  • Political polarization
  • Causal effects

JEL Classification

  • D72
  • E60
  • H00
  • N12
  • N42
  • P16