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Do Powerful Politicians Cause Corporate Downsizing?

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Executive Summary

This paper employs a new empirical approach for identifying the impact of government spending on the private sector. The key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, the authors show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. These corporate behaviors follow both Senate and House committee chair changes, are partially reversed when the congressman resigns, and are most pronounced among geographically-concentrated firms.

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