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Do Powerful Politicians Cause Corporate Downsizing?


  • Lauren Cohen
  • Joshua Coval
  • Christopher Malloy


This 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.

Suggested Citation

  • Lauren Cohen & Joshua Coval & Christopher Malloy, 2011. "Do Powerful Politicians Cause Corporate Downsizing?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1015-1060.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/664820

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    References listed on IDEAS

    1. Wendy Edelberg & Martin Eichenbaum & Jonas D.M. Fisher, 1999. "Understanding the Effects of a Shock to Government Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 166-206, January.
    2. repec:cup:apsrev:v:63:y:1969:i:03:p:787-807_25 is not listed on IDEAS
    3. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    4. Lisa Kiel & Richard McKenzie, 1983. "The impact of tenure on the flow of federal benefits to SMSA's," Public Choice, Springer, vol. 41(2), pages 285-293, January.
    5. Levitt, Steven D & Poterba, James M, 1999. "Congressional Distributive Politics and State Economic Performance," Public Choice, Springer, vol. 99(1-2), pages 185-216, April.
    6. Gruber, Jonathan & Hungerman, Daniel M., 2007. "Faith-based charity and crowd-out during the great depression," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1043-1069, June.
    7. Jeffrey Clemens & Stephen Miran, 2012. "Fiscal Policy Multipliers on Subnational Government Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 46-68, May.
    8. Dario Caldara & Christophe Kamps, 2006. "What Do We Know About the Effects of Fiscal Policy Shocks? A Comparative Analysis," Computing in Economics and Finance 2006 257, Society for Computational Economics.
    9. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
    10. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
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