The Real Cost of Political Polarization: Evidence from the COVID-19 Pandemic

Abstract

This paper examines the role of political factors in mediating the formation of beliefs among individuals and the adoption of regional policies in the United States. First, using comprehensive and nationally representative data on over 47,000 individuals available from March to July, we document that heterogeneity in beliefs about the SARS-CoV-2 pandemic and social distancing behaviors is driven primarily by political affiliation, mattering even more than factors directly connected to the disease, such as individual age and county infections. Second, we examine how political partisanship arising from these differences in beliefs about the virus propagate into the adoption of state policies. The adoption of these nonessential business closures and stay-at-home orders are associated with declines in retail visits, credit card spending, and small business revenue growth, relative to the pre-pandemic trend. In contrast, mask mandates reduce the spread of the virus at least as much and have none of the adverse economic effects. Our results provide evidence in favor of Majoritarian Electoral Democracy theories by showing that the average voter matters, countering the view that politics is driven purely by interest groups and elites.

Keywords: Beliefs, Coronavirus and COVID-19, Economic Disruption, Expectations, Partisanship, Political Affiliation, Social Distancing

JEL Classification: E66, E71, I12, I31