IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/21101.html

Fiscal Insurance

Author

Listed:
  • Shen, Leslie Sheng
  • Xu, Nancy

Abstract

We show that government policies interact in ways that shape how capital markets price risk. We introduce the concept of fiscal insurance: a mechanism through which certain fiscal tools are perceived by investors to mitigate the risks created by other government policies. Exploiting the 2018--19 U.S. tariff shocks and concurrent federal procurement spending, we find that firms facing higher tariff exposure earn higher risk premia, but this effect is substantially attenuated for firms receiving greater procurement. Procurement itself increases more for politically connected and economically vulnerable firms, revealing both political and economic channels of fiscal insurance. Overall, our evidence documents the existence of fiscal insurance, a cross-policy mechanism, with implications for firm valuation and real activity.

Suggested Citation

  • Shen, Leslie Sheng & Xu, Nancy, 2026. "Fiscal Insurance," CEPR Discussion Papers 21101, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21101
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP21101
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:21101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.