Government Spending and Rising Industry Stars

Roberto Gomez Cram, Yunhan Guo, Howard Kung and Luca Mecca

No 20454, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Government spending is large, persistent, and disproportionately allocated to a select number of firms within industries through federal procurement contracts. To identify the effects on firm outcomes, we construct government spending shocks at the firm level as the difference between realized and expected contract awards. We measure expectations by tracing the allocation of each dollar to firms back to appropriations bills and exploiting predictable agency-to-firm procurement shares. Firms receiving positive government spending shocks increase markups and profitability, outperform industry peers in the stock market, and gain market share, fostering rising industry stars.

Keywords: Government spending shocks; Fiscal policy; Markups; Industry dynamics (search for similar items in EconPapers)
JEL-codes: G18 L11 (search for similar items in EconPapers)
Date: 2025-07
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