Is it the Economic Policy, Stupid? Economic Policy, Political Parties & the Gubernatorial Incumbent Advantage

Abstract

Incumbent politicians have a well-known advantage in seeking re-election. Using the Economic Freedom of North America dataset, we examine how changes in economic policy during an incumbent governor’s tenure influence the probability of losing their re-election bid. In other words, does economic policy matter for the incumbent advantage? The results suggest that decreases in economic freedom increase the probability of incumbent loss, regardless of the governor's party. A decomposition analysis indicates that these results are primarily driven by the government spending sub-index. A more granular analysis suggests that: (1) increases in government consumption spending and government employment are associated with a lower probability of re-election among Democratic governors, but a lower probability among Republicans; (2) Increases in transfer payments relative to personal income reduce the likelihood of re-election, regardless of party; (3) increases in income taxation relative to personal income and top marginal tax rates are associated with a higher and lower, respectively, probability of losing re-election, but only among Republican incumbents. We also control for a variety of demographic, political and socio-economic factors and find that high unemployment increases the probability that an incumbent loses re-election and net migration reduces it.