Political “color” and the impact of climate risks on output growth: evidence from a panel of US states

Abstract

In this paper, we show that the effect of climate risks on economic growth in a panel of 48 contiguous states of the US is contingent on the party affiliation of the local politicians, as captured by a Democratic-Republican Index (DRI). Specifically, our results, based on a regime-dependent local projections model, indicate that extreme weather-related shocks tend to negatively impact output growth more severely, especially in the medium- to long-run, in the Republican-leaning states with low-DRI values compared to those characterized by high-DRIs over the annual period 1967 - 2023. In addition, when we incorporate the information on states that have undertaken explicit targets for reduction of greenhouse gas emissions, following the Climate Change Action Plan implemented in 1993, we find that the significant long-horizon negative effect continues to hold only for the states with low-DRIs, i.e., those that are Republicans-oriented.</p