Working Paper: NBER ID: w24719
Authors: Eric Hilt; Wendy M. Rahn
Abstract: We analyze the effects of ownership of liberty bonds, which were marketed to households during World War I, on election outcomes in the 1920s. In order to address the endogeneity of liberty bond subscriptions, we utilize the local severity of the fall 1918 influenza epidemic, which disrupted the largest liberty bond campaign, as an instrument. We find that counties with higher liberty bond ownership rates turned against the Democratic Party in the presidential elections of 1920 and 1924. This was a reaction to the depreciation of the bonds prior to the 1920 election (when the Democrats held the presidency), and the appreciation of the bonds in the early 1920s (under a Republican president), as the Fed raised and then subsequently lowered interest rates. Our results suggest the liberty bond campaigns had unintended political consequences and illustrate the potential for financial asset ownership to increase the sensitivity of ordinary households to economic policy decisions.
Keywords: financial asset ownership; political partisanship; liberty bonds; electoral success
JEL Codes: N1; N2; N3; N4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liberty bond subscriptions (H56) | voting behavior (D72) |
| local severity of the fall 1918 influenza epidemic (N92) | liberty bond subscriptions (H56) |
| liberty bond ownership (G12) | Democratic vote share (D79) |
| liberty bond ownership (G12) | voting behavior (D72) |