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Buy Big or Buy Small? Procurement Policies, Firms' Financing, and the Macroeconomy
This paper provides a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We build a novel panel data set for Spain that merges public procurement data, credit register loan data, and quasi-census firm-level data. We provide evidence consistent with the hypothesis that procurement contracts act as collateral for firms and help them grow out of their financial constraints. We then build a model of firm dynamics with asset and earnings-based borrowing constraints and a government that buys goods and ...