Quarterly Journal of Political Science > Vol 2 > Issue 3

Party Influence in Congress and the Economy

Erik Snowberg, Stanford GSB, USA, snowberg@stanford.edu Justin Wolfers, Wharton—University of Pennsylvania CEPR, IZA and NBER, USA, jwolfers@wharton.upenn.edu Eric Zitzewitz, Stanford GSB, USA, ericz@stanford.edu
 
Suggested Citation
Erik Snowberg, Justin Wolfers and Eric Zitzewitz (2007), "Party Influence in Congress and the Economy", Quarterly Journal of Political Science: Vol. 2: No. 3, pp 277-286. http://dx.doi.org/10.1561/100.00006060

Published: 13 Aug 2007
© 2007 E. Snowberg, J. Wolfers and E. Zitzewitz
 
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Keywords
H00G13G14
Prediction marketsEvent studiesCongressional electionsPolitical parties
 

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In this article:
The 2006 Election
Previous Elections
Discussion
References

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.

DOI:10.1561/100.00006060

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DOI: 10.1561/100.00006060_supp