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Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications

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  • Pijoan-Mas, Josep
  • di Giovanni, Julian
  • García-Santana, Manuel
  • Moral-Benito, Enrique

Abstract

We provide a framework to study how different allocation systems of public procurement affect firm dynamics and long-run macroeconomic outcomes. We build a newly created panel dataset of administrative data for Spain that merges credit register loan data, quasi-census firm-level data, and public procurement projects. We show evidence consistent with the hypothesis that procurement contracts provide valuable collateral for firms, and more so than sales to the private sector. We then build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms, and use it to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that policies that promote the participation of small firms have sizeable macroeconomic effects, but their net impact on aggregate output is ambiguous. These policies help small firms grow and overcome financial constraints, which increases output in the long run. However, they also reduce saving incentives for large firms, decreasing output. The relative extent of these two forces and hence which of them dominates crucially depends on the type of financial frictions and the specific way the policy is implemented.

Suggested Citation

  • Pijoan-Mas, Josep & di Giovanni, Julian & García-Santana, Manuel & Moral-Benito, Enrique, 2022. "Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications," CEPR Discussion Papers 17023, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:17023
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    Cited by:

    1. Cappelletti, Matilde & Giuffrida, Leonardo M., 2021. "Procuring survival," ZEW Discussion Papers 21-093, ZEW - Leibniz Centre for European Economic Research.
    2. Bessonova, Evguenia, 2023. "Firms’ efficiency, exits and government procurement contracts," European Journal of Political Economy, Elsevier, vol. 76(C).
    3. Bernard Hoekman & Marco Sanfilippo & Filippo Santi, 2022. "Government Demand and Domestic Firms Growth: Evidence from Uganda," RSCAS Working Papers 2022/54, European University Institute.
    4. Matilde Cappelletti & Leonardo Maria Giuffrida & Gabriele Rovigatti, 2024. "Procuring survival," Temi di discussione (Economic working papers) 1439, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Government procurement; Financial frictions; Capital accumulation; Aggregate productivity;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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