Abstract
We examine the causal impact of public-sector spending on corporate investment. Making use of population count revisions in census years as exogenous shocks to the cross-sectional allocation of federal funds, we find that increases in federal spending reduce firms’ investment, R&D spending, employment growth, sales growth, and firm-level equity volatility. The effect is stronger for firms that are labor-intensive, smaller, geographically concentrated, financially constrained, or in regions with higher employment or more generous unemployment insurance benefits. We find that exogenous increases in government hiring reduce corporate hiring, and positive federal spending shocks reduce the flow of workers from the public-sector to the private sector. Overall, our results show that positive government spending reduces corporate investment by hurting firms’ investment opportunity sets and highlight the significant role of the labor market as an underlying mechanism.
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
