Fiscal Policy and Credit Supply: The Procurement Channel

Bonfim, Diana; Ferreira, Miguel A.; Queiró, Francisco; Sujiao (Emma), Zhao

http://hdl.handle.net/10362/143356

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Resumo(s)

We measure how cuts to public procurement propagate through the banking system in a financial crisis. During the European sovereign debt crisis, the Portuguese government cut procurement spending by 4.3% of GDP.We find that this cut saddled banks with non-performing loans from government contractors, which led to a reduction in credit supply to other firms. The credit supply shock, in turn, caused firm output to decline. In a general equilibrium model, our firm-level estimates imply an aggregate elasticity of credit supply with respect to aggregate demand of 1.6 and a credit-driven fiscal multiplier of 0.6.

Palavras-chave

Credit supply Government procurement Investment Employment Financial crisis Bank-sovereign loop Austerity

URI

http://hdl.handle.net/10362/143356

Citação

Bonfim, Diana, Ferreira, Miguel A., Queiró, Francisco, Zhao, Sunjiao. Fiscal Policy and Credit Supply: The Procurement Channel. (November 2022) Nova SBE Working Paper Series No. 644