Do Businessmen Make Good Governors?
34 Pages Posted: 30 Jun 2015 Last revised: 18 Sep 2015
Date Written: September 15, 2015
This paper empirically evaluates the economic performance of U.S. state governors who came to the position from a business background (CEO governors), focusing on the growth rate of real personal income per capita, unemployment rate, private investment, and income inequality. Methodologically, I apply a matching method to account for the endogeneity of political selection. Using entropy balancing, I identify credible counterfactuals for CEO governors, that is, governors without a business background who took office under similar economic and fiscal situations. I find, first, that businesspeople tend to take office in times of economic and fiscal strain. Second, the tenures of CEO governors are associated with a 0.6 percentage points higher annual income growth rate, a 0.4 pp higher growth rate of the private capital stock, and a 0.6 percentage points lower unemployment rate than are the tenures of non-CEO governors. Also, state-level income inequality decreases when CEO governors hold office, indicating that low-income households benefit from the economic upswing. Third, the positive effect of having a CEO governor increases with time in office. Fourth, Republican CEO governors perform slightly better than their Democratic colleagues.
Keywords: U.S. Governors, U.S. politics, U.S. states, economic growth, unemployment, income inequality, businessmen, CEO, entropy balancing
JEL Classification: C21, E24, E60, O47
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