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Can Government Demand Stimulate Private Investment?
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Can Government Demand Stimulate Private Investment?

Evidence from U.S. Federal Procurement

Shafik Hebous and Tom Zimmermann
IMF, 2016
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Editorial Rating

8

Qualities

  • Innovative
  • Eye Opening
  • Well Structured

Recommendation

Stimulus funds affect much more than just household consumption. Debates over whether government debt is appropriate when devoted to infrastructure investment often ignore the fact that the firms the state tasks to build new bridges and roads are also investing, increasing their own capacities and raising economic growth. This noteworthy study by economists Shafik Hebous and Tom Zimmermann explores how businesses expand by winning government contracts. getAbstract recommends it to policy makers, executives and investors.

Take-Aways

  • Research shows that US government spending increases businesses’ abilities to invest, spurring macroeconomic activity.
  • Capital-constrained companies, such as small or low-rated firms, appear to invest more as a result of government contracts than large or highly rated companies.
  • Data from federal and other public sources indicate that each $1 of government spending results in 7.5 cents in additional private investment.

About the Authors

Shafik Hebous is an economist at the International Monetary Fund. Tom Zimmermann is an economist at the Federal Reserve Board.

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