| Journal of Political Economy
Do Powerful Politicians Cause Corporate Downsizing?
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 chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. This retrenchment follows both Senate and House committee chair changes, occurs in large and small firms and within large and small states, and is most pronounced among geographically concentrated firms. The effects are economically meaningful and the mechanism-entirely distinct from the more traditional interest rate and tax channels-suggests new considerations in assessing the impact of government spending on private sector economic activity.
Innovation and Invention;
Business and Government Relations;
Power and Influence;