We use restricted data from the Quarterly Census of Employment and Wages (QCEW) to link the universe of U.S. establishments with the universe of contractors in the Federal Procurement Data System (FPDS). Leveraging detailed institutional knowledge of federal acquisitions, we construct a new set of unanticipated contracts and examine their effects on employment growth. We find positive, significant, and persistent effects on firms with fewer than 150 employees. Using loan data from the Federal Reserve (Y14-Q), we show that small firms expand their credit and face lower interest rates after winning unanticipated contracts. At the regional level, we estimate a cost-per-job of $57,000 per year using unanticipated contracts—an order of magnitude lower than previous estimates based on all defense contracts. Lastly, by leveraging restricted QCEW data, we decompose the employment multiplier into a direct effect on contractors and an indirect multiplier effect on non-contractors, finding a 55-45% split, respectively.
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.
We investigate whether joining the European Monetary Union and losing the ability to set monetary policy affected the economic growth of Eurozone countries. We use the synthetic control approach to create a counterfactual scenario for how each Eurozone country would have evolved without adopting the euro. We let this matching algorithm determine which combination of other developed economies best resembles the pre-euro path of twelve Eurozone economies. Our estimates suggest that most countries’ economic growth was not significantly affected. There were some mild losers (France, Germany, Italy, and Portugal) and a clear winner (Ireland). The drivers of these economic gains and losses are heterogeneous. First, we find that Ireland’s economic gains are more modest when excluding profits and income earned by foreigners. Second, our results show that adopting the euro spurred government consumption and trade and deterred private consumption and investment, on average.
This paper argues that the exchange rate regime matters for inflation and economic activity, with substantial benefits arising from a currency peg. At the heart of these benefits lies an increase in credibility that reduces the inflationary bias once central banks commit to peg their currency to a credible anchor. Using an open economy model, we provide a credibility estimate for 170 economies for 1950-2019 which aligns with other central bank independence measures. We document that committing to a peg persistently lowers inflation and its volatility while increasing real growth. Less credible countries benefit more from fixing the exchange rate.
Using a novel regional database covering over 200 elections in several European countries, this paper provides new empirical evidence on the political consequences of fiscal consolidations. To identify exogenous reductions in regional public spending, we use a Bartik-type instrument that combines regional sensitivities to changes in national government expenditures with narrative national consolidation episodes. Fiscal consolidations lead to a significant increase in extreme parties’ vote share, lower voter turnout, and a rise in political fragmentation. We highlight the close relationship between detrimental economic developments and voters’ support for extreme parties by showing that austerity induces severe economic costs through lowering GDP, employment, private investment, and wages. Austerity-driven recessions amplify the political costs of economic downturns considerably by increasing distrust in the political environment.
Using newly assembled data for 18 advanced economies between 1870 and 2019, I study how monetary policy affects wage inflation and unemployment and document two key findings regarding their tradeoff. First, the wage Phillips curve displays a time-varying slope. Second, the tradeoff becomes weaker in low price inflation environments due to a stronger unemployment rate and a muted wage inflation response to monetary policy. These findings lend support to the idea that monetary policy has state-dependent effects with the central banks’ ability in exploring the tradeoff being impaired by a low price inflation environment.
Using a newly assembled rich dataset at the regional level, this paper provides novel empirical evidence on the fiscal transmission mechanism in the Eurozone. Our baseline estimates reveal a government spending relative output multiplier around 2, an employment multiplier of 1.4, and a cost per job created of approximately €30,000. Moreover, we find that a regional fiscal stimulus leads to a significant increase in private investment, productivity, durable consumption, and the labor share together with a significant rise in total hours worked driven by changes in the extensive margin (total employment), whereas the intensive margin (hours per worker) barely reacts. Contrarily to the common policy narrative of strong positive spillover effects, we estimate only small regional fiscal spillovers. Finally, our findings reveal strong heterogeneities across industries, states of the economy, and member states.
The economic literature considers voters quasi-rational agents that care about maximizing their individual welfare when deciding on who to vote for. Voters believe that, once a politician is elected, his or her characteristics will affect policy outcomes and consequently their private welfare. To assess whether mayors’ characteristics influence municipalities’ financial performance, I use a dataset composed of 278 Portuguese mainland municipalities from 2003 to 2016. I find that mayors’ age, education, occupation, and tenure influence the level of public investment, tax revenues, debt, and budget balances. Although most of the Portuguese voters only consider candidates’ political affiliation when deciding on who to vote for, my estimates do not show any significant impact of this characteristic on the financial indicators analyzed. Therefore, these results question the way Portuguese vote by arguing that, when voting for local government representatives, they should care about other characteristics among candidates besides their political affiliation.