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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?
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