June 18th, 2014
by Philadelphia Fed
Partisan conflict has increased substantially in the United States since the mid-1970s. Commentators and researchers suggest that the deep ideological division between the two main parties may have been an important factor affecting the aggregate economy, in particular by slowing the recovery from the 2007-09 recession. This document investigates whether these claims are supported by the data. Intuitively, partisan conflict increases the volatility of fiscal policy, raising the degree of uncertainty faced by businesses and firm which has been shown to negatively affect the economy.