The Effect of Consumer Sentiment on Consumption: Cross-Sectional Evidence from Elections

Abstract

This paper seeks to identify the effect of consumer sentiment on consumption. Using Australian consumer sentiment data, which is unique in asking individuals about their political preferences, we show that consumers report substantially higher levels of sentiment when their self-identified political party holds office at a federal level compared to those who support the opposition party. The relative change in sentiment occurs precisely at elections which result in a change of government, and is sustained for the entire period each party holds office. To determine whether changes in sentiment affect consumption, we match postcode-level vote-share data to new car sales to households. Using data from two elections which saw a change of government, we find that car sales to households increased relatively more in postcodes with a higher share of voters for the winning party. The results are robust to a variety of economic controls. Overall our results suggest that consumer sentiment contains useful independent information about future consumption.