Four More Years? The effect of economic reforms on re-election probability in gubernatorial elections 1985-2010

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: Economic literature offers several theories of resistance towards reforms among politicians. Yet, recent empirical cross-country studies suggest that voters reward governments pursuing structural reforms. This paper tests this hypothesis on gubernatorial elections in the U.S. over the period 1985-2010, using probit regressions and increases in an index measuring the degree of economic freedom as a proxy for economic reforms. Results clearly indicate that American voters indeed reward governors that have increased the degree of economic freedom. This effect is driven by decreases in the size of government, particularly decreases in subsidies and transfers. Furthermore, anecdotal evidence and empirical studies suggest that economic reforms are easier implemented from left-wing governments. This logic is explained by a theoretical model and tested empirically on gubernatorial elections, and results in the conclusion that Democratic governors are disproportionally rewarded relative to Republican governors. Results are robust when altering the specification of the model or the model itself, however the magnitudes of the effects are questionable.

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