Consumer Sentiment and Identity Politics: Evidence from India

Ghosh, Arkadev and Mitra, Aruni and Mukherji, Ronit (2025): Consumer Sentiment and Identity Politics: Evidence from India.

Abstract

We study how shifts in political power affect economic sentiment and consumption behavior in identity-polarized settings. Using panel data from more than 178,000 Indian households, we find that sentiment about personal finances - but not the national economy - predicts household expenditure, even after controlling for income growth. Exploiting close elections, we find that Muslim households become more pessimistic after electoral victories by the Hindu nationalist party, especially about national conditions. However, this divergence in sentiment is not associated with corresponding differences in spending. A simple Bayesian learning model explains this disconnect through limited transmission from macro beliefs to personal expectations.

• Item Type: MPRA Paper
• Language: English
• Keywords: sentiment, consumption, close elections, identity politics
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C36 - Instrumental Variables (IV) Estimation; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E66 - General Outlook and Conditions

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