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Economic expectations under the shadow of party polarization: Evidence from 135 government changes

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  • Guirola, Luis

Abstract

I study the behavior of economic expectations under political polarization. Using microdata spanning 27 countries over three decades, I follow a difference-in-differences design exploiting 135 government changes to identify the differential update of expectations along partisan lines. I then show that this difference is stronger in more polarized settings; in fact, 57% of its variation can be accounted for by the polarization of political parties. The resulting gap in supporters’ expectations cannot be rationalized as reflecting expectations about the government’s economic policy, suggesting instead that political (non-economic) conflicts contaminate economic expectations.

Suggested Citation

  • Guirola, Luis, 2025. "Economic expectations under the shadow of party polarization: Evidence from 135 government changes," European Economic Review, Elsevier, vol. 171(C).
    • Handle: RePEc:eee:eecrev:v:171:y:2025:i:c:s0014292124002393
    DOI: 10.1016/j.euroecorev.2024.104910
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    More about this item

    Keywords

    Economic expectations; Political polarization; Political partisanship; Motivated beliefs;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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