National economic conditions regularly influence outcomes in U.S. presidential elections. However, beyond this simple finding, much remains unclear. How large are national economic effects? Which macroeconomic indicators? Subjective or objective measures? Retrospective or prospective? What is the role of institutions? In our analysis of the American National Election Studies, 1956-1996, we employ a National Business Index (NBI), an aggregate measure that amalgamates individual voter perceptions of the collective economy. It outperforms other national economic measures and reveals that effects have been underestimated. The assumption of strong retrospective economic voting is tested under different institutional hypotheses. Contrary to expectations, it is not found to be influenced by divided government, but it is heavily influenced by incumbency, meaning in practice whether a popularly elected president is running. Moreover, this incumbency variable highly conditions the time horizon of national economic voting. When a popularly elected president is not running, such voting is almost entirely prospective. These conditional effects go a long way toward explaining certain enduring controversies in the literature. National economic conditions regularly influence outcomes in U.S. presidential elections. Voluminous research has secured certain propositions about this link between economics and elections. In aggregate-level time series models, a macroeconomic indicator has an almost obligatory presence as a central variable (

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Conventional wisdom argues that national economic perceptions generally have an important impact on the vote choice in democracies. Recently, a revisionist view has arisen, contending that this link, regularly observed in election surveys, is mostly spurious. According to the argument, partisanship distorts economic perception, thereby substantially exaggerating the real vote connection. These causality issues have not been much investigated empirically, despite their critical importance. Utilizing primarily American, and secondarily British and Canadian, election panel surveys, we confront directly questions of the time dynamic and independent variable exogeneity. We find, after all, economics clearly matters for the vote. Indeed, once these causality concerns are properly taken into account, the impact of economic perceptions emerges as larger than previously thought. As well, the actual impact of partisanship is clearly reduced.

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