Why the Economy Grows Faster Under Democrat Presidents

[Toro]

Basically, it's luck, plus something else.

The U.S. economy has grown faster—and scored higher on many other macroeconomic metrics—when the President of the United States is a Democrat rather than a Republican. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant, despite the fact that postwar history includes only 16 complete presidential terms. This paper asks why. The answer is not found in technical time series matters (such as differential trends or mean reversion), nor in systematically more expansionary monetary or fiscal policy under Democrats. Rather, it appears that the Democratic edge stems mainly from more benign oil shocks, superior TFP performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future. Many other potential explanations are examined but fail to explain the partisan growth gap. ...

The U.S. economy not only grows faster, according to real GDP and other measures, during Democratic versus Republican presidencies, it also produces more jobs, lowers the unemployment rate, generates higher corporate profits and investment, and turns in higher stock market returns. Indeed, it outperforms under almost all standard macroeconomic metrics. By some measures, the partisan performance gap is startlingly large--so large, in fact, that it strains credulity, given howlittle influence over the economy most economists (or the Constitution, for that matter) assign to the President of the United States. ...

We find that oil shocks, productivity shocks, international growth shocks, and (perhaps) shocks to consumer expectations about the future jointly explain about half of the partisan gap. The first three of these look a lot more like good luck than good policy. In sharp contrast to these explanations, our empirical analysis finds that fiscal or monetary shocks do not explain the partisan growth gap.

http://papers.nber.org/tmp/72467-w20324.pdf