Why the Economy? Raymond Duch University of Houston Randy Stevenson Rice University

Cross-national Studies of Economic Voting

At the individual level, limited efforts to understand cross-national variation. Lewis-Beck 1988 Paldam 1991 Nonetheless some interesting differences in model results cross- nationally

At the aggregate level, considerable cross-national variation in economic voting results. “Clarity of responsibility” is one effort to help understand – but limited.

Research Puzzle We suspect individual-level economic voting models vary significantly cross- nationally. But current published modeling efforts are not rich enough to draw meaningful conclusions.

Our Insights Economic evaluations are attitudes – information processing, cueing and cognitive psychology literature. Measure extent to which economic information is “mediated”.

The Research Project

Mediated Economic Cues Citizens employ cues/information short- cuts in forming economic assessments Luppia & McCubbins argument Nevertheless information gathering costs matter

Political actors, elites, media attempt to shape these cues or “packaging” of messages Zaller on the strategic manipulation of media by political actors Iyengar on framing

Distorted messages regarding economy? Some evidence from analyses of different media  Negativity bias  Human interest bias

Distortions depend on: Information gathering costs Cross-national diversity of media Institutional contexts

Implications for EV Models? Economic evaluations are based on distorted information Seriously questions the “democratic accountability” theory of EV

Null hypothesis Economic perceptions and actual economic outcomes track each other in a regular fashion The series are co-integrated and can be modeled as an ECM

Mediated cues argument There is distortion in mass assessments of economic outcomes. This distortion is a function of mediated messages regarding the economy (media, politicians, etc.)

Hypothesis Distortion evidenced by poor ECM fit. Mediation implies degree of distortion correlated with cost of information High for unemployment Low for inflation Mediation implies asymmetric effects

Mediation also implies considerable cross-national variation in degrees of distortion Mediation implies distortions in both mass and elite economic assessments

Data Mass public’s economic assessments: Monthly consumer confidence surveys conducted by the European Commission in all member countries Elite’s economic assessments Monthly business confidence surveys from European Commission

Economic indicators Quarterly GDP growth from OECD (Palmer and Whitten) CPI and unemployment figures from The Economist All variables are transformed into standardized z scores

Modeling Economic Attitudes

The error correction model  ProInf it =  i   [ ProInf it-1   INF it     INF it+1 +  it

 = t-test on  indicates significance of co- integration

   =  long term multiplier for the effect of a change in the real economy on economic expectations  Expectation is that   

Results

CPI and Price Expectations  (ECM) parameter significant in all but one country (Italy) The long term relationship between CPI and Price Expectations captured by   is significant and close to 1 as expected Note the asymmetry --   is larger when inflation increasing

Unemployment and Unemployment Expectations  (ECM) parameter significant is not significant Suggesting the two series are not co- integrated.

General Economy & GDP  (ECM) parameter significant in all countries The long term relationship between general economy and GDP captured by   is significant and close to 1 in vast majority of case Asymmetry in   is less consistent but evident

Cross national variation Note there is cross-national variation in The magnitude of t 1 The incidence of asymmetry

Conclusions Perceptions of the economy and the real economy are in many cases co- integrated and seem to fit an error correction process There is evidence of distortion

There is also evidence that distortion results from mediated cues Economic outcomes that are costly to monitor (unemployment) are perceived less well by the mass public than easily monitored outcomes (CPI) Asymmetry in reactions to positive and negative economic news

Cross-national variation Long-term equilibrium relationship between series Asymmetry varies by nation Suggests role of mediated economic information

The economy, economic attitudes and political preferences

What Drives Popularity Series? Subjective assessments of the economy – which we think are shaped from mediated representations of the economy? Or, the real economy?