 The Credit Channel of Public ProcurementJournal of Monetary Economics, 2024, vol. 147, issue S Abstract: Public procurement accounts for one-third of government spending. In this paper, I document a new mechanism through which government procurement promotes firm growth: firms use procurement contracts to increase cash flow based lending. I use Portuguese administrative data from 2009 to 2019 and exploit public contests as a source of quasi-exogenous variation in the award of procurement contracts. Winning one additional euro from a procurement contract increases firm credit by 7 cents at lower interest rates. This finding highlights a mechanism through which future fiscal stimulus can impact the real economy today: procurement contracts increase firms’ net worth by increasing future cash flows that can be used as collateral to ease borrowing constraints and boost corporate liquidity. Consequently, this enhanced access to credit promotes higher investment and employment, with these effects being more pronounced and persistent in smaller and financially constrained firms. At the aggregate level, I empirically estimate that spending one additional euro in public procurement increases regional output by 1.3 euros with the credit channel accounting for 5% of it. Keywords: Credit; Collateral; Corporate finance; Fiscal policy; Public procurement (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:s:s0304393224000540 DOI: 10.1016/j.jmoneco.2024.103601 Access Statistics for this article Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser More articles in Journal of Monetary Economics from Elsevier |
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