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Do Powerful Politicians Cause Corporate Downsizing?

  • Lauren Cohen
  • Joshua Coval
  • Christopher Malloy
Registered author(s):

    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.

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    File URL: http://dx.doi.org/10.1086/664820
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: http://dx.doi.org/10.1086/664820
    Download Restriction: Access to the online full text or PDF requires a subscription.

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    Article 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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    Handle: RePEc:ucp:jpolec:doi:10.1086/664820
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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    1. 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.
    2. Jordi Galí & J. David López-Salido & Javier Vallés, 2002. "Understanding the effects of government spending on consumption," Economics Working Papers 911, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2005.
    3. 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.
    4. Jonathan Gruber & Daniel M. Hungerman, 2005. "Faith-Based Charity and Crowd Out during the Great Depression," NBER Working Papers 11332, National Bureau of Economic Research, Inc.
    5. Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
    6. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    7. 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.
    8. 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.
    9. 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.
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