Partisan Politics, Financial Deregulation, and the New Gilded Age

This paper examines how financial deregulation and the partisan underpinnings of deregulation shaped the path of income inequality in the United States. Using time series data from 1914 to 2010 we assess the effect of partisan politics on financial deregulation and, in turn, the effect of deregulation on income inequality. We find that financial deregulation has generally declined when Democrats attain more power in Washington and that deregulation has contributed to rising inequality. We also learn that the partisan effect on deregulation has diminished since the early 1980s, suggesting that one way partisan politics has contributed to the recent rise in inequality is related to convergence on matters of financial deregulation. We explore several potential explanations for this post-1980 partisan convergence, finding evidence supporting the idea that globalization, the increasing availability of credit, and shifts in campaign finance were contributing factors.