Cleveland Fed, Report: The Effect of Local Economic Shocks on Local and National Elections

“This study aims to answer two related questions: first, whether or not voters react to the way an incumbent government manages the economy; second, whether that reaction depends on the origin of the shock (or “room to maneuver”). By exploiting a historical set of circumstances, we are able to isolate two economic shocks and their causes: first, an appreciation of the US dollar that took place after the UK and other important US trading partners abandoned the gold standard, a decision largely outside the scope of influence of the US president; second, a depreciation that took place after the US abandoned the gold standard, a decision taken by the executive branch.”

“The theory indicates that voters should reward the government more for the second shock, since it was a consequence of its policy, and they should be less responsive to the first one, since the government had to react to a shock that originated abroad. This article finds evidence that voters weight economic conditions when voting regardless of the government’s responsibility in terms of the origin of a shock, since they punished the incumbent after the negative shock of 1931 symmetrically to the way they rewarded the incumbent in 1936 after a comparable positive shock.”