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Publications
Publications
  • December 2011
  • Article
  • Journal of Political Economy

Do Powerful Politicians Cause Corporate Downsizing?

By: Lauren Cohen, Joshua Coval and Christopher J. Malloy
  • Format:Print
  • | Pages:46
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Abstract

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.

Keywords

Spending; Private Sector; Taxation; Innovation and Invention; Interest Rates; Business and Government Relations; Investment; Employment; Power and Influence

Citation

Cohen, Lauren, Joshua Coval, and Christopher J. Malloy. "Do Powerful Politicians Cause Corporate Downsizing?" Journal of Political Economy 119, no. 6 (December 2011): 1015–1060. (Click here for a response to Snyder and Welch, click here for the data, and click here for the code.)
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About The Author

Lauren H. Cohen

Finance
→More Publications

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More from the Authors
  • (Family) Size Matters: Nico Oprée and the Decreasing Power of Family Unity over Time By: Lauren Cohen, Octavian Graf Pilati, Dominik V. Eynern and Sophia Pan
  • 'Net Zero in Action': Impact Investing at the McKnight Foundation By: Lauren Cohen, Christina R. Wing and Sophia Pan
  • The Micro-Family Office: Aamir Rehman By: Lauren Cohen and Sophia Pan
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