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Capitalizing on Partisan Politics? The Political Economy of Sector-Specific Redistribution in Germany

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  • MICHAEL M. BECHTEL
  • ROLAND FÜSS

Abstract

This paper studies the redistributive effects of government partisanship on economic sectors in a parliamentary democracy. Based on a rational partisan perspective and policy-induced campaign contribution models, we expect that once in office, ideologically different parties deliver favorable policies to different industries in order to enrich their electoral and sector-specific supporters. Using daily stock market data, we empirically evaluate whether and how the mean and the volatility of returns to four important economic sectors covaried with the electoral prospects of a right-/left-leaning coalition in Germany from 1991 to 2005. This sheds light on the magnitude of sector-specific redistribution to be expected from ideologically different governments holding office. The results show that the mean and the volatility of defense and pharmaceutical sector returns increase if a right-leaning government is becoming more likely to win the upcoming election. In contrast, an increase in the probability of a left-leaning government triggers higher returns to the alternative energy sector and increases the volatility of consumer sector returns. Thus, our estimates partly support the idea that parties redistribute across sectors. Copyright (c) 2010 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 42 (2010)
Issue (Month): 2-3 (03)
Pages: 203-235

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Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:2-3:p:203-235

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Camyar, Isa & Ulupinar, Bahar, 2013. "The partisan policy cycle and firm valuation," European Journal of Political Economy, Elsevier, vol. 30(C), pages 92-111.
  2. Niklas Potrafke, 2011. "Is German Domestic Social Policy Politically Controversial?," Working Paper Series of the Department of Economics, University of Konstanz 2011-06, Department of Economics, University of Konstanz.
  3. Bohl, Martin T. & Kaufmann, Philipp & Stephan, Patrick M., 2013. "From hero to zero: Evidence of performance reversal and speculative bubbles in German renewable energy stocks," Energy Economics, Elsevier, vol. 37(C), pages 40-51.
  4. Martin Bohl & Philipp Kaufmann & Patrick Stephan, 2012. "From Hero to Zero: Evidence of Performance Reversal and Speculative Bubbles in German Renewable Energy Stocks," CQE Working Papers 2412, Center for Quantitative Economics (CQE), University of Muenster.

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