PARTY CUES, POLITICAL TRENDS, AND FISCAL INTERACTIONS IN THE UNITED STATES

Abstract

Recent theoretical and empirical research has suggested that similarities in party affiliations across space will alter voters' comparisons, thus influencing fiscal policy mimicking. We employ a two-regime spatial panel data model applied to U.S. state governors from 1970 to 2012, and find rather weak empirical evidence of influence of political party affiliations in fiscal yardstick competition. Our observed cross-state interdependence in fiscal policies suggests voters may not weigh party affiliation heavily in their measure of comparative quality, treating each incumbent individually and independently. Incumbents strategically choose policy accordingly. This provides indirect support for the median voter theorem, in which incumbents' objective function is to maximize votes, independent of political affiliation. (JEL D72, H2, H7). © 2019 Western Economic Association International