Working Paper

Cross-Policy Risk Pricing

Abstract: We show that interactions across government policies affect firms’ cost of equity capital. Exploiting the 2018–2019 U.S. tariff shocks and concurrent federal procurement spending, we find that firms facing higher tariff exposure earn higher subsequent risk premia, but this effect is substantially attenuated for firms receiving greater procurement. A one-standard-deviation increase in procurement attenuates about two-thirds of the tariff-related risk premium. Procurement is relatively more favorable for politically connected and economically vulnerable firms. Larger procurement inflows also attenuate tariff-induced declines in subsequent earnings. Together, these findings reveal a form of fiscal insurance in which government procurement partially offsets the financing and real consequences of tariff exposure.

JEL Classification: G12; G38; E62; G14;

https://doi.org/10.29412/res.wp.2026.13

Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2026-08-01

Number: 26-13