Is There a Difference?Is There a Difference?

How Should You Vote?How Should You Vote?• Is “Big Government” better?Is “Big Government” better?

– Republicans want less government involvement.Republicans want less government involvement.– Democrats want more government involvement.Democrats want more government involvement.

• Which party’s strategy is better?Which party’s strategy is better?– Is there a positive correlation between GDP and Is there a positive correlation between GDP and

government expenditures?government expenditures?

• AnalysisAnalysis– Find change in GDP and government expenditures for Find change in GDP and government expenditures for

each president’s term. each president’s term. – Determine if there is a correlation between the political Determine if there is a correlation between the political

party and the health of the economy.party and the health of the economy.

Initial HypothesisInitial Hypothesis

• Voting for Democratic Voting for Democratic

candidates would be better for candidates would be better for

our economy in terms of GDP our economy in terms of GDP

growth.growth.– During President Clinton’s stay in office, the During President Clinton’s stay in office, the

economy prospered.economy prospered.

– During President Bush’s term, the economy has During President Bush’s term, the economy has

not maintained the growth that it had during not maintained the growth that it had during

Clinton’s term.Clinton’s term.

The NumbersThe Numbers

• GDP per year since 1948.GDP per year since 1948.• Government expenditures per year Government expenditures per year

since 1948.since 1948.• Party affiliation of presidents since Party affiliation of presidents since

1948.1948.• Party affiliation of senators and house Party affiliation of senators and house

representatives since 1948representatives since 1948.

Regression OutputRegression OutputRegression Output: Actual Vs. Estimated Values

-0.075

-0.025

0.025

0.075

1948 1956 1964 1972 1980 1988 1996

Year

Per

cen

tag

e C

han

ge

in

GD

P P

er W

ork

er

Actual

Fitted

• Our regression does not fit the actual data Our regression does not fit the actual data perfectly…perfectly…

• However, it does model it quite well.However, it does model it quite well.

Government Government ExpendituresExpenditures

Government's Share of the Economy

0

0.05

0.1

0.15

0.2

0.25

0.3

0.351952

1957

1962

1967

1972

1977

1982

1987

1992

1997

Year

Perc

en

tag

e

Government's Shareof the Economy

• Government expenditures were rising from 1948 till Government expenditures were rising from 1948 till 1992.1992.

• Government expenditures have been declining since Government expenditures have been declining since 1992.1992.

GDP per WorkerGDP per WorkerGDP Per Worker

010000200003000040000500006000070000800001952

1957

1962

1967

1972

1977

1982

1987

1992

1997

Year

In D

olla

rs

GDP Per Worker

• GDP per worker used because it factors out population increases GDP per worker used because it factors out population increases over time.over time.

• GDP per workerGDP per worker more accurate measure of economy’s strength.more accurate measure of economy’s strength.

Party Affiliation of the Party Affiliation of the GovernmentGovernment

House/Senate Party Affiliation

0100200300400500600

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31

Term Number

Rep

rese

ntat

ives

s

Democrats Republicans

• Party affiliations tells us the majority party of the “main Party affiliations tells us the majority party of the “main decision makers”.decision makers”.

• Democrats are the majority party in 25 of the 30 years being Democrats are the majority party in 25 of the 30 years being observed.observed.

10 Year Forecast of 10 Year Forecast of GDPGDP

Trend in the Rate of Change in the Government's Sharey = -0.0021x + 0.0204

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

1980 1988 1996

Year

Perc

en

tag

e

• Trend in Government Expenditures since 1948.Trend in Government Expenditures since 1948.• Downward sloping and turns negative around 1988.Downward sloping and turns negative around 1988.

10 Year Forecast cont…10 Year Forecast cont…Forecasts

-0.1

-0.05

0

0.05

0.1

0.15

1980 1988 1996 2004

Year

Per

cen

tag

e

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Change inGovernment's Share

Growth Rate of GDPPer Worker with 10-Year Forecast

Dependent Variable:Change in theGrowth Rate of GDPPer WorkerDependent Variable10-Year Forecast

GDP Per Workerwith 10-YearForecast

• Orange trend line represents 10-year forecast of GDP per Orange trend line represents 10-year forecast of GDP per Worker.Worker.

• Assumes that government expenditures continued its downward Assumes that government expenditures continued its downward trend.trend.

Final HypothesisFinal Hypothesis

• We found that the party affiliation of the We found that the party affiliation of the Presidents and the political Presidents and the political representatives in Congress are not representatives in Congress are not significantly correlated with the change significantly correlated with the change in GDP per worker.in GDP per worker.

• However, the change in government However, the change in government share is significantly correlated with the share is significantly correlated with the change in GDP per worker.change in GDP per worker.

GDP vs. Government GDP vs. Government ExpendituresExpenditures

Dependent Variable: GDP variable

Method: Least Squares

Date: 11/23/03 Time: 15:37

Sample(adjusted): 2 51

Included observations: 50 after adjusting endpoints

Variable Coefficient Std. Error t-Statistic Prob.

C -0.003134 0.006519 -0.480753 0.6329

Gov’s Share(-1) 0.464043 0.119788 0.0003

Political Dummy 1.03E-05 0.009279 0.001107 0.9991

R-squared Mean dependent var 0.000929

Adjusted R-squared 0.209776 S.D. dependent var 0.036875

S.E. of regression 0.032780 Akaike info criterion -3.939872

Sum squared resid 0.050503 Schwarz criterion -3.825151

Log likelihood 101.4968 F-statistic

Durbin-Watson stat 2.654736 Prob(F-statistic) 0.001485

7.503860

3.873874

0.242030

Questions?Questions?

Questions?Questions?