Stock Ownership and Congressional Elections: The Political Economy of the Mutual Fund Revolution
Duca, John V., Saving, Jason L., Economic Inquiry
In recent years, political analysts have conjectured that voting has been affected by the rise of an investor class in the United States, where the stock ownership rate has doubled from under 25% in the late 1970s to over 50% by 2001. (1) This shift in portfolio behavior has accompanied an upward shift in the two-party share of the House popular vote for candidates from the more capital-friendly Republican Party (Figure 1).
While the notion that property interests affect voting is an old and intuitive one, empirical tests of the effect of stock ownership on voting have been hampered by the lack of continuous time series data on stock ownership. Fortunately, continuous data on equity mutual fund costs are available from Duca (2006) that are highly and negatively correlated with discontinuous stock ownership rates as shown by Duca (2001, 2005). In line with research on factors affecting stock ownership by Aiyagari and Gertler (1991) and Heaton and Lucas (2000), we argue that mutual fund costs are a good proxy for stock ownership rates and use them in short- and long-run models of the two-party share of the popular vote for Congressional Republican candidates that use data spanning 1954-2004.
We analyze the link with congressional voting because the shorter cycle of races allows for more degrees of freedom than presidential races, and we focus on House rather than Senate elections, the latter of which cover only one-third of that body and are not geographically balanced. Also, relative to presidential elections and Senate elections, the larger number of House races in national vote totals and the lower profile of individual representatives limit the impact of personality on elections, perhaps allowing for a cleaner test of the role of property interests. We focus on the national share of the popular vote rather than on the number of House seats because the latter is influenced by the design of House districts, which is subject to political gerrymandering.
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We test whether the rise in the Republican share of the House popular vote from around 44% to 50% since the late 1980s is linked to wider stock ownership. Our findings accord with the view that the mutual fund revolution has contributed to a shift in voting. In particular, our results suggest the Republican share of the House popular vote will likely fluctuate around 50% until other factors trigger a political realignment.
Our study is organized as follows. Section II reviews the history of the debate over linking voting rights with property ownership in the United States and the literature on how stock ownership rates could affect voting. Section III empirically tests whether there is a long-run relationship between the House popular vote and stock ownership. Section IV addresses whether property interests, as reflected in this long-run relationship, help explain short-run changes in voting in the presence of more conventional short-run variables (e.g., midterm elections). To assess whether these findings are robust, Section V similarly analyzes the House vote in the South, where there has been a long-run shift toward the Republican Party. Section VI analyzes the popular vote shares in Senate elections. Although the latter is noisier than the House series and is not from a geographically balanced electorate unlike House races, applying the methodology to the Senate provides a robustness check on the House results. Section VII summarizes our findings and discusses their implications for future research.
II. VOTING AND PROPERTY OWNERSHIP IN U.S. HISTORY
The idea that asset ownership could affect voting is an old one in the United States and was much discussed at the 1787 constitutional convention. George Mason proposed that owning land be required for Senators because the chamber was intended "to secure the rights of property," which presumably could not be guaranteed if Senators did not own property (Madison 1987, 200). …