Working Paper: CEPR ID: DP18306
Authors: Thiemo Fetzer; Ivan Yotzov
Abstract: This paper documents that surprise election outcomes - measured as deviations between realised vote shares and expected vote shares based on a newly constructed dataset of opinion polls and party and candidate vote shares close to election day - are causing non-negligible short-term contractions in economic activity. We find that, on average, a percentage point higher surprise is associated with a 0.37 percentage point lower year-on-year growth rate one year after the election. These effects are only present in countries with strong democracies and seem to operate mainly through increased economic policy uncertainty and lower investment growth over a window of up to eight quarters after an election. In addition, surprise performances of left-wing political parties and in elections with transitions to left-wing governments are associated with the largest effects on the economy.
Keywords: macroeconomic fluctuations; elections; structural reforms; surprises; uncertainty
JEL Codes: E02; E3; F5; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Surprise election outcomes (D79) | significant short-term contractions in economic activity (E32) |
| One percentage point higher surprise (C29) | 0.37 percentage point lower year-on-year growth rate one year post-election (F62) |
| Electoral surprises (K16) | heightened economic policy uncertainty (E60) |
| Electoral surprises (K16) | diminished investment growth (E22) |
| Left-wing electoral surprises (D79) | pronounced negative effects on economic activity (F69) |
| Surprise election outcomes (D79) | contractions in GDP growth (E20) |
| Surprise election outcomes (D79) | contractions in investment growth (E20) |
| Surprise election outcomes (D79) | increased economic policy uncertainty (D89) |