Other lines of research find a connection between corporate investment and political uncertainty. For instance, a study in a recent issue of the Journal of Finance finds that "during election years, firms reduce investment expenditures by an average of 4.8% relative to nonelection years." Meanwhile, higher uncertainty about government policy is expected to have a negative impact on stock prices, according to a model in forthcoming paper in the Journal of Finance. And a recent NBER paper warns that political procrastination in resolving the long-term fiscal challenge for the U.S. "perpetuates uncertainty," which can be thought of as an "excess burden of government indecision."
The future, of course, is always uncertain. Deciding if there's an unusually high level of ambiguity harassing decisions in the here and now is tricky. In an effort to bring some clarity to the topic, three economics professors—Baker, Bloom and Davis (BBD), as noted above—have created an index of economic policy uncertainty in a recent paper and they update the benchmark monthly at PolicyUncertainty.com. The index reflects three data sets:
1. Monthly news stories that cite various references to uncertainty
2. A measure of tax code uncertainty based on tax code provisions set to expire each year