# Divided Government, Unified Government, and the US Economy

Kellen Gong, Allison Malloy, Matthew Wernke

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Kellen Gong, Allison Malloy, Matthew Wernke. Divided Government, Unified Government, and the US Economy. 2024. hal-04705339

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# Divided Government, Unified Government, and the US Economy

Kellen Gong, Allison Malloy, Matthew Wernke

Carmel High School

## Abstract

The current discourse among researchers regarding the impact of government structures on governance in the United States is marked by conflicting views. While some studies suggest that divided government adversely affects legislative efficacy, others propose potential advantages over its unified counterpart. Yet, scant attention has been paid to the comprehensive analysis of how government structure influences the entire US economy. Addressing this gap, this study delves into the relationship between government forms and US economic performance. Employing a range of key indicators to capture various economic sectors, comprehensive data sourced from the Federal Reserve System were analyzed using multiple statistical tests. The findings reveal that unified governments are associated with a superior US economy, characterized by stronger growth, heightened activity, and greater economic stability. These insights deepen our understanding of the economy in relation to prevailing government forms.

Key Words: divided federal government, unified federal government, economy
# 1. Introduction

The United States economy is renowned for its advanced development and global prominence, driven significantly by governmental decisions. Political structures within the government undoubtedly play a crucial role in policymaking, directly influencing economic trajectories (Bryan, 2013). The prevalence of divided government where different political parties control the executive and legislative branches, alongside unified government where one party controls the presidency, senate and congress, has sparked debates regarding their impact on governance and economic performance.

Since the end of World War II, divided government within the US has become increasingly common (Fiorina, 1994). While some argue that divided government leads to legislative stalemates, hindering significant policy implementation (Cutler, 1990; Edwards et al., 1997), others suggest potential advantages such as preventing government overreach and fostering beneficial competition between branches (Mclennan, 2011). Fiscal policy, influenced by the collaboration between the president and Congress, serves as a primary mechanism through which the government impacts the economy (Horton et al. 2019; Ross et al. 2021). However, ideological differences between political parties can also complicate fiscal policy-making, exacerbating gridlock and impeding the passage of policies (Alt et al., 1994; Amadeo, 2022; Bernecker, 2014; American Compass, 2023).

Existing research offers conflicting perspectives on the relationship between government form and economic outcomes. Some studies emphasize the limited direct influence of political parties on economic aggregates (Snowberg et al., 2006). Others underscore the significant role of government structure in shaping economic performance but differ in their views on how the structures affect the economy.

Moreover, these studies typically analyze individual parts of the economy rather than examining overall economic performance with respect to government structures (O'Brien, 2022, Sieber et al., 2018,
Papamichalis et al., 2022). This leaves a gap in understanding the broader relationship between government form and economic performance in the United States.

This study aims to elucidate the association between economic performance and government form (divided vs. unified) in the United States by exploring various economic metrics used to measure economic activities. The research seeks to uncover patterns that may inform policymakers, economists, and the public about the implications of different government forms on economic well-being.

## 2. Data and Methodology

### 2.1. Study Design

Two sample t-tests and analysis of variance (ANOVA) tests were employed to analyze the relationship between individual economic indicators and government structure. Additionally, a composite score that could integrate all economic indicators was calculated for a study of the relationship between overall economic performance and government structure. First, each observation $x_i$ was standardized using formula:

$$z_i = (x_i - \mu)/\sigma$$

Where:

* $x_i$ is the value of an economy indicator for the ith observation.

* $\mu$ is the mean of the indicator.

* $\sigma$ is the standard deviation of the indicator.

Then, the direction of association was considered. If an indicator had a positive association with economic performance, the formula was used as is. However, if an indicator had a negative association, the values were inverted by multiplying by -1 before standardization. The standardized values of all indicators for
each observation period were then combined through linear addition. This resulted in composite scores
aiming to represent the overall economic performance. Two linear addition approaches were employed for
computing the composite scores with one using equal weights (all being 1) and the other using weights
given by the first principal component after a principal component analysis.

## 2.2. Selection of Time Period

Data collection commenced in 1950, chosen to coincide with a pivotal period in US history following
World War II. This era marked the onset of post-war economic recovery, positioning the United States as
a global economic powerhouse. Additionally, the availability of economic statistics dating back to the
1950s informed the selection of this time period. Data collection concluded in 2022, the most recent year
for which economic data were available, allowing for a comprehensive analysis spanning over seven
decades.

## 2.3. Selection of Economic Statistics

To gauge US economic performance, eight key economic metrics were utilized. These metrics included
inflation rate, unemployment rate, real gross domestic product (GDP) growth, consumer sentiment index,
industrial production index, domestic private investment growth, growth of federal debt as a percentage of
GDP, and corporate profit growth. Each metric provided unique insights into different facets of the
economy. The selection of these metrics was guided by their relevance and ability to capture various
aspects of economic performance.

## 2.4. Collection of Data

The data collection process commenced with the creation of a tracking sheet, organized by year and key
political and economic factors. Political factors included government form (divided or unified) and the
presidential party in office, while economic factors comprised the selected metrics. Growth rates of
economic metrics were also tracked to facilitate standardized comparisons over time. Data was sourced from reputable institutions such as the Federal Reserve Economic Data (FRED) and the Bureau of Labor Statistics, ensuring credibility and reliability. Government form and presidential party data were obtained from the United States House of Representatives History Archive.

**2.5. Ethical Considerations**

Prior to data collection, the research protocol was reviewed and approved by the Research Ethics Review Committee (ERC). Given that the study involved the use of publicly available data without personal identifiers, no ethical concerns were identified. Anonymity and confidentiality were maintained as the data did not contain any personal information.

**3. Results and Discussions**

In order to comprehensively assess the relationship between government structure and US economic performance, an array of economic indicators were analyzed through a combination of statistical methods, including analysis of variance (ANOVA) tests and two-sample t-tests. Additionally, consideration was given to the influence of presidential party affiliation on this relationship, providing a nuanced understanding of the dynamics at play.

**3.1. Inflation Rate**

The relationship between inflation rate and government structure was analyzed using a two sample t-test since quantitative variables from two separate groups were compared in order to see if there were significant differences. As shown in Figure 1A, the average inflation rate under unified governments is similar (3.50%) to the average inflation rate under divided governments (3.56%), indicating the inflation may not be influenced by the government structures. The relationship between inflation rate and government structure was further assessed using an analysis of variance (ANOVA) test, which took into account all possible combinations of government type and presidential party (Divided Democrat, Unified
Democrat, Divided Republican, Unified Republican). Interestingly, the test revealed a significant association between government form, presidential party affiliation and inflation rate (p = 0.0049).

<figure><img src="image_3.png" /><figcaption>Figure 1. Relationship between inflation rate and government structure</figcaption></figure>

Specifically, when a Democrat holds the presidency, inflation rates tend to be lower under divided governments, whereas under a Republican president, inflation rates are lower under unified governments (Figure 1B). In addition, the highest levels of inflation occurred when the government is unified under a Democrat president and when the government is divided under a Republican president, which confirms the findings by Chittenden (2020).

## 3.2. Unemployment Rate

<figure><img src="image_4.png" /><figcaption>Figure 2. Relationship between unemployment rate and government structure</figcaption></figure>

The unemployment rate with respect to the government structure was analyzed using a two sample t-test. As shown in Figure 2, the average unemployment rate during divided governments is greater (6.02%) than the average unemployment rate during unified governments (5.37%). The difference is statistically significant with a p value of 0.046. Interestingly, the results are contrary to
previous findings at the state level (Sieber et al., 2018), which demonstrated that unemployment rates are
significantly lower under divided governments compared to unified governments. This divergence
underscores the importance of considering national-level analyses in understanding the relationship
between government structure and unemployment.

3.3. Real GDP Growth Rate

The relationship between government form and the real GDP
growth rate was also analyzed using a two sample t-test. The
average GDP growth rate (3.74%) under unified governments
is about 1 percentage point higher than the average GDP
growth rate (2.79%) under divided governments (Figure 3).
The difference is significant with a *p* value of 0.044. This
finding highlights the positive impact of unified governments
on economic growth.

<figure><img src="image_5.png" /><figcaption>Figure 3. Relationship between real GDP growth rate and government structure</figcaption></figure>

**3.4. Consumer Sentiment/Confidence**

Consumer confidence is similar between divided and unified governments. The average consumer
confidence indices under divided and unified government are 86.33 and 86.85, respectively (Figure 4A).

A

<figure><img src="image_6.png" /></figure>

B

<figure><img src="image_7.png" /><figcaption>Figure 4. Relationship between consumer sentiment and government structure</figcaption></figure>
Moreover, a statistically significant association between the government form, presidential party and the consumer confidence in the economy is revealed when analyzed using ANOVA test with a *p* value of 0.0363 (Figure 4B). Specifically, when the president is a Democrat, consumer confidence is lower during a unified government compared to a divided one. Conversely, when the president is Republican, consumer sentiment is lower when the government is divided. Much like the inflation rate, the best combination of presidential party and government form is either a unified government and Republican president or a divided government and Democratic president.

## 3.5. Industrial Production Index Growth Rate

The Industrial Production Index is an economic indicator which measures the real production output of manufacturing and mining for a particular year in the US. Two-sample t-test was used to measure the differences in industrial production between divided and unified governments, comparing the average growth rates of the industrial production index under different government forms. Although not statistically significant (*p* = 0.073), the t-test revealed a trend that there is more average industrial production when the government is unified (3.92%)

than when it is divided (2.22%), suggesting a unified government may stimulate greater industrial output and economic activity (Figure 5).

<figure><img src="image_8.png" /><figcaption>Figure 5. Relationship between industrial production index growth rate and government structure</figcaption></figure>

## 3.6. Domestic Private Investment Growth Rate

A two sample t-test was used in order to understand the relationship between investment in the US economy and the government structure. While not statistically significant (*p* = 0.208), there is a discernible trend towards higher investment growth under unified governments. As shown in Figure 6, the
average investment growth under unified governments (8.40%) appeared to be larger than that of divided

governments (6.45%). This finding aligns with the analysis indicating increased responsiveness to investment opportunities under unified governments (Im et al., 2023).

## 3.7. Federal Debt

The relationship between federal debt and government structure was evaluated by two sample

<figure><img src="image_9.png" /><figcaption>Figure 6. Relationship between private investment growth rate and government structure</figcaption></figure>

t-test using the growth of the federal debt as a percentage of GDP. Although not conclusive (p = 0.091), the analysis suggests a tendency towards slower federal debt accumulation under unified governments as shown in Figure 7. In fact, the average federal debt as a percent of GDP decreased slightly under unified governments (-0.48%) compared to the average increase of 1.39% under

<figure><img src="image_10.png" /><figcaption>Figure 7. Relationship between federal debt and government structure</figcaption></figure>

divided governments. This observation underscores the potential for unified governments to facilitate more effective management of federal debt relative to economic growth.

<figure><img src="image_11.png" /><figcaption>Figure 8. Relationship between corporate profit growth rate and government structure</figcaption></figure>

## 3.8. Corporate Profit Growth Rate

The corporate profits are significantly associated with the government structures with a p value of 0.011 (Figure 8). Under unified governments, the average corporate profit
growth rate is around 11.69% which is more than twice the average corporate growth rate under divided governments (5.05%). This finding highlights the positive impact of unified governments on business profitability and growth. These results align with the observations made by Armstrong and Wu (2022) where they showed that a divided government led to decreases in spending, which would ultimately lead to a decrease in business profits.

## 3.9. Combination of Economic Indicators

In order to provide a more comprehensive understanding of how different government arrangements impact economic performance, a composite score was calculated to combine all indicators through linear addition for every year.

As described in the Methodology, two different approaches, equal weights (all weights being 1)

and weights by principal component analysis (PCA) (Table 1), were used to compute the composite scores after the values of indicators were standardized and the direction of the association was considered.

<table><caption>Table 1. Weight for each indicator based on PCA</caption><thead><tr><td>Indicator</td><td>Weight by PCA</td></tr></thead><tbody><tr><td>Inflation Rate</td><td>0.1118</td></tr><tr><td>Unemployment Rate</td><td>0.2843</td></tr><tr><td>Real GDP Growth Rate</td><td>0.463</td></tr><tr><td>Consumer Sentiment Index</td><td>0.3512</td></tr><tr><td>Industrial Production Index Growth Rate</td><td>0.4636</td></tr><tr><td>Private Investment Growth Rate</td><td>0.3796</td></tr><tr><td>Growth of Federal Debt as a % of GDP</td><td>0.3627</td></tr><tr><td>Corporate Profit Growth Rate</td><td>0.28</td></tr></tbody></table>

<figure><img src="image_12.png" /><figcaption>Figure 9. Relationship between economic performance using the composite score and government structure</figcaption></figure>
Using equal weight, the average composite scores under unified and divided governments are 0.643% and -0.9%, respectively (Figure 9A). Using PCA, the average composite scores under unified and divided governments are 0.334% and -0.202%, respectively (Figure 9B). While not statistically significant, both approaches demonstrate a similar trend that economic performance is stronger during unified governments compared to divided governments. In addition, the variation in the composite scores under the unified governments appears to be smaller than that of the divided governments, indicating the performance under unified governments is more predictable.

**3.10. Overall Relationship between Economic Performance and Government Structures**

The collective analysis of eight indicators of economic performance suggests a trend: unified governments tend to foster more favorable economic conditions compared to divided governments (Table 2). Higher GDP growth, lower unemployment rates, and greater corporate profitability are all significantly associated with unified governments. Other indicators such as higher industrial production index growth rate, higher domestic private investment growth rate and lower federal debt accumulation trend towards unified governments although without statistical significance. Interestingly, two indicators, inflation rate and consumer sentiment, demonstrate little difference between divided and unified governments. However, the combination of either a unified government with a Republican president or a divided government with a Democratic president is strongly associated with lower inflation rate and higher consumer sentiment. Consistent with the analysis of individual indicators, the combination of all indicators reveals a similar trend that the economy performs stronger under unified governments than divided governments (Table 2). While these findings provide valuable insights, it's essential to acknowledge there are limitations. Firstly, the analytical nature of the study precludes establishing causation. Additionally, economic performance is influenced by a myriad of factors beyond government structures, including global economic trends and technological advancements. Furthermore, the study's
Divided Government, Unified Government, and the US Economy

analysis of historical data may not be applicable to future contexts, emphasizing the need for ongoing research in this area.

<table><caption>Table 2. Summary of economic indicators and their relationship with government structures</caption><thead><tr><td>Indicator</td><td>Analysis</td><td>p value</td></tr></thead><tbody><tr><td>Inflation rate</td><td>Similar between divided and unified governments</td><td>0.466</td></tr><tr><td>Unemployment rate</td><td>Lower under unified government</td><td>0.046</td></tr><tr><td>Real GDP growth rate</td><td>Higher under unified government</td><td>0.044</td></tr><tr><td>Consumer sentiment/confidence</td><td>Similar between divided and unified governments</td><td>0.571</td></tr><tr><td>Industrial production index growth rate</td><td>Higher under unified government</td><td>0.073</td></tr><tr><td>Domestic private investment growth rate</td><td>Higher under unified government</td><td>0.208</td></tr><tr><td>Growth of Federal Debt as a % of GDP</td><td>Lower under unified government</td><td>0.091</td></tr><tr><td>Corporate profit growth rate</td><td>Higher under unified government</td><td>0.011</td></tr><tr><td>Composite score (equal weight)</td><td>Higher under unified government</td><td>0.114</td></tr><tr><td>Composite score (weight by PCA)</td><td>Higher under unified government</td><td>0.129</td></tr></tbody></table>
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