Party Influence in Congress and the Economy

Author(s): Erik Snowberg;Justin Wolfers;Eric Zitzewitz

Source:
    Journal:Quarterly Journal of Political Science
    ISSN Print:1554-0626,  ISSN Online:1554-0634
    Publisher:Now Publishers
    Volume 2 Number 3,

Document Type: Article
Pages: 10 (277-286)
DOI: 10.1561/100.00006060

Abstract: To understand the extent to which partisan majorities in Congress influence economic policy, we compare financial market responses in recent midterm elections to Presidential elections. We use prediction markets that track election outcomes as a means of precisely timing and calibrating the arrival of news, allowing substantially more precise estimates than a traditional event study methodology. We find that equity values, oil prices, and Treasury yields are slightly higher with Republican majorities in Congress, and that a switch in the majority party in a chamber of Congress has an impact that is only 10%–30% of that of the Presidency. We also find evidence inconsistent with the popular view that divided government is better for equities, finding instead that equity valuations increase monotonically, albeit slightly, with the degree of Republican control.

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