Economic Growth Strategies: The Effects of Ideological Partisanship on Interest Rates and Business Taxation in the United States

Abstract

We reformulate the partisanship thesis in light of four claims leveled against it. The reformulated version, ideological partisanship, is based upon the theory that similar rates of economic growth may follow from the different use of policy instruments. Owing to their role as determinants of investment and growth, interest rates, business taxation rates, and the redistribution of the tax burden between capital gains and earned income are examined. We advance models that take into account other views of politics beside the partisan one, and test for political influences. The United States is characterized by very pronounced partisan differences in national economic policy with Democratic administrations seeking to promote growth through a consumption driven, while Republican administrations promote an investment-driven strategy. Democratic administrations also seek to shift the tax burden toward corporations and owners of capital. These findings are examined in light of the comparative political economy literature. We conclude that the forms and institutional foundations of left partisan policies differ among democratic capitalist countries.