NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Powerful Politicians Cause Corporate Downsizing?

Lauren Cohen, Joshua D. Coval, Christopher Malloy

NBER Working Paper No. 15839
Issued in March 2010
NBER Program(s):   AP   CF   PE   POL   PR

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. These corporate reactions follow both Senate and House committee chair changes, are present among large and small firms and within large and small states, are partially reversed when the congressman resigns, and are 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.

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Document Object Identifier (DOI): 10.3386/w15839

Published: “Do Powerful Politicians Cause Corporate Downsizing?” (with Joshua Coval and Christopher Malloy), 2011. Journal of Political Economy 119, 1015-1060.

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