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Does fiscal devaluation always work? A sectoral and business cycle perspective

Author

Listed:
  • Piotr Ciżkowicz

    (Warsaw School of Economics)

  • Andrzej Rzońca

    (Warsaw School of Economics)

  • Wiktor Wojciechowski

    (Warsaw School of Economics)

Abstract

The study verifies effects of fiscal devaluation on a broad set of sector and firm-level macroeconomic variables among European economies in years 1995–2019. Using local projection and panel data models it finds that fiscal devaluation impact on employment is stronger in services and small businesses, where production is most labour intensive. In turn, in manufacturing, where production is capital intensive, firms may substitute capital for labour in response to fiscal devaluation. Lastly, fiscal devaluation favours employment in recessions more than in times of economic expansions, as only in recessions it reduces labour costs in a more lasting way.

Suggested Citation

  • Piotr Ciżkowicz & Andrzej Rzońca & Wiktor Wojciechowski, 2025. "Does fiscal devaluation always work? A sectoral and business cycle perspective," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 52(4), pages 777-810, November.
    • Handle: RePEc:kap:empiri:v:52:y:2025:i:4:d:10.1007_s10663-025-09655-1
    DOI: 10.1007/s10663-025-09655-1
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    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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