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Impact of countercyclical fiscal policy on total factor productivity in state-owned enterprises: A corporate governance perspective

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  • Cheng, Wenyin
  • Liu, Shenglong
  • Meng, Bo
  • Gao, Yuning

Abstract

The impact of the countercyclical fiscal policy (CFP) on short-term economic recovery has been extensively studied. Yet, little is known about how it affects total factor productivity (TFP), a determinant of long-term growth. Utilizing unique data on government-approved projects in China and a semi-parametric difference-in-differences approach, we observe an l-shaped negative impact of CFP on TFP in state-owned enterprises (SOEs), particularly local ones. The decline in TFP growth was manifested in slower technological progress and increased resource misallocation, especially in dynamic rather than static allocation. The social burdens placed on SOEs, evident in employment missions and high leverage ratios, drive mission-oriented behaviors during the implementation of CFP, resulting in a decline in TFP growth. Additionally, the principal-agent problems within SOEs, reflected by agency costs and exacerbated by institutional challenges like limited fiscal transparency and corruption, further intensify the negative impact. These highlight the importance of strengthening corporate governance of SOEs.

Suggested Citation

  • Cheng, Wenyin & Liu, Shenglong & Meng, Bo & Gao, Yuning, 2025. "Impact of countercyclical fiscal policy on total factor productivity in state-owned enterprises: A corporate governance perspective," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1916-1930.
    • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1916-1930
    DOI: 10.1016/j.eap.2025.02.032
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    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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