State-Level Economic Policy Uncertainty

This paper examines state-level economic policy uncertainty. Tapping digital archives for nearly 3,500 local newspapers, we construct three monthly indexes for each state: one that captures exposure to state and local sources of policy uncertainty (EPU-S), one that captures exposure to national sources (EPU-N), and a composite index that captures both. EPU-S rises around gubernatorial elections and own-state episodes like the California electricity crisis of 2000-01 and the Kansas tax experiment of 2012. $EPU$-$N$ rises around presidential elections and in response to 9-11, Gulf Wars I and II, the 2011 debt-ceiling crisis, the 2012 fiscal cliff episode, and federal government shutdowns. Closer elections bringer larger rises in policy uncertainty. The COVID-19 pandemic drove huge increases in policy uncertainty, especially from state-level sources. Cholesky-identified VARs show that upward innovations in state-level EPU foreshadow higher unemployment in the state and weaker economic activity.