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Partisan Conflict and Private Investment

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  • Marina Azzimonti

Abstract

American politics have been characterized by a high degree of partisan conflict in recent years. Combined with a divided government, this has led not only to significant Congressional gridlock, but also to spells of high fiscal policy uncertainty. The unusually slow recovery from the Great Recession during the same period suggests the possibility that the two phenomena may be related. In this paper, I investigate the hypothesis that political discord depresses private investment. To this end, I construct a novel high- frequency indicator of partisan conflict. The partisan conflict index (PCI) uses a semantic search methodology to measure the frequency of newspaper articles reporting lawmakers' disagreement about policy. I find a negative relationship between the PCI and aggregate investment in the US. Moreover, the decline is persistent, which may help explain the slow recovery observed since the 2007 recession ended. Partisan conflict is also associated with lower investment rates at the firm level, particularly in firms that rely heavily on government spending and in those who actively engage in campaign contributions through PACs.

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  • Marina Azzimonti, 2015. "Partisan Conflict and Private Investment," NBER Working Papers 21273, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21273
    Note: EFG POL
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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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