Summary of Can Government Demand Stimulate Private Investment?

Evidence from U.S. Federal Procurement

Shafik Hebous and Tom Zimmermann

IMF, 2016

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Can Government Demand Stimulate Private Investment? summary

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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.

In this summary, you will learn

Why government spending can ease companies’ capital constraints,
How this allows firms to increase investment and contribute to economic activity, and
What effect this has on the market value of businesses.

Summary

While many researchers have looked at the effect of government spending on private consumption, few studies have focused on the impact of state spending on private investment. According to economic theory, companies – absent funding constraints – should invest until the marginal benefit of their investment...

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