Identity Politics, Partisan Sentiment and Household Spending

Ghosh, Arkadev and Mitra, Aruni and Mukherji, Ronit (2025): Identity Politics, Partisan Sentiment and Household Spending.

Abstract

We examine how political shifts affect household economic sentiment and spending in identity-polarized settings. Using panel data on over 178,000 Indian households, we find that sentiment about personal finances --- and, to a lesser extent, the national economy --- predicts expenditure, even after accounting for income changes. Using close state elections, we show that Muslims become markedly more pessimistic than Hindus about national economic conditions following victories by the Hindu-nationalist party, but exhibit relatively smaller differences in personal financial sentiment, and no detectable divergence in expenditure. A Bayesian learning framework explains the insulation of consumption from politically induced sentiment shocks through the limited transmission of macro-beliefs to individual behavior in high-volatility environments.

• 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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