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Can government demand stimulate private investment? Evidence from U.S. federal procurement

Shafik Hebous () and Tom Zimmermann

Journal of Monetary Economics, 2021, vol. 118, issue C, 178-194

Abstract: Demand shocks lower firm financing premiums by increasing the present value of cash-flow, thereby easing firm financing constraints. We study the effects of unanticipated federal spending shocks on firm investment in the United States using a novel panel dataset that combines federal procurement contracts with key financial firm-level information. Consistent with the financial accelerator model, our results suggest that 1 dollar of federal purchases increases capital investment of financially constrained firms by 10 to 13 cents over a horizon of 4 quarters, but has no effect on investment of unconstrained firms.

Keywords: Demand shocks; Financial accelerator; Investment; Procurement; Financing constraints; Spending multipliers (search for similar items in EconPapers)
JEL-codes: E62 E69 H32 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Can government demand stimulate private investment? Evidence from U.S. federal procurement (2019) Downloads
Working Paper: Can Government Demand Stimulate Private Investment? Evidence from U.S. Federal Procurement (2016) Downloads
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DOI: 10.1016/j.jmoneco.2020.09.005

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