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U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict

Listed author(s):
  • Rangan Gupta

    (University of Pretoria)

  • Chi Keung Marco Lau

    (University of Northumbria)

  • Stephen M. Miller

    (University of Nevada, Las Vegas)

  • Mark E. Wohar

    (University of Nebraska at Omaha)

Fiscal policy shocks exert wide-reaching effects, including movements in asset markets. U.S. politics have been characterized historically by a high degree of partisan conflict. The combination of increasing polarization and divided government leads not only to significant Congressional gridlock, but also to spells of high fiscal policy uncertainty. This paper adds to the literature on the relationships between fiscal policy and asset prices in the U.S. economy, conditional on the degree of partisan conflict. We analyze whether a higher degree of partisan conflict (legislative gridlock) reduces the efficacy of the effect and response of fiscal policy on and to asset price movements, respectively. We find that partisan conflict does not significantly affect the relationships between the fiscal surplus to GDP and housing and equity returns. Rather, if important, partisan conflict affects the actual implementation of fiscal policy actions.

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File URL: http://web2.uconn.edu/economics/working/2017-10.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2017-10.

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Length: 19 pages
Date of creation: Jun 2017
Handle: RePEc:uct:uconnp:2017-10
Note: Stephen Miller is the corresponding author
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University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063

Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/

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