Do Powerful Politicians Cause Corporate Downsizing?
AbstractThis paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanships as a source of exogenous variation in state-level federal expenditures. We show that fiscal spending shocks appear to significantly dampen corporate investment activity. This retrenchment occurs within large and small states and is most pronounced among geographically concentrated firms. The effects are economically meaningful, and the mechanism—entirely distinct from interest rate and tax channels—suggests new considerations in assessing the impact of government spending on private-sector economic activity.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 119 (2011)
Issue (Month): 6 ()
Pages: 1015 - 1060
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Web page: http://www.journals.uchicago.edu/JPE/
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- Belo, Frederico & Gala, Vito D. & Li, Jun, 2013. "Government spending, political cycles, and the cross section of stock returns," Journal of Financial Economics, Elsevier, vol. 107(2), pages 305-324.
- Emi Nakamura & Jón Steinsson, 2011. "Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions," NBER Working Papers 17391, National Bureau of Economic Research, Inc.
- Gerald Carlino & Robert P. Inman, 2013. "Macro fiscal policy in economic unions: states as agents," Working Papers 13-40, Federal Reserve Bank of Philadelphia.
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