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Heterogeneous gains from countercyclical fiscal policy: new evidence from international industry-level data
[Optimal investment with costly reversibility]

Author

Listed:
  • Sangyup Choi
  • Davide Furceri
  • João Tovar Jalles

Abstract

Empirical evidence to date suggests a positive relationship between fiscal policy countercyclicality and growth. But do all industries gain equally from countercyclical fiscal policy? What are the channels through which countercyclical fiscal policy affects industry-level growth? We answer these questions by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 countries—including both advanced and developing economies—during the period 1970–2014. Among the various industry characteristics guided by different theoretical channels, we find that the credit constraints channel identifies the best transmission mechanism through which countercyclical fiscal policy enhances growth. This channel becomes stronger during periods of weak economic activity when credit constraints are more likely to bind and periods of effective lower bound on the monetary policy rate.

Suggested Citation

  • Sangyup Choi & Davide Furceri & João Tovar Jalles, 2022. "Heterogeneous gains from countercyclical fiscal policy: new evidence from international industry-level data [Optimal investment with costly reversibility]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 773-804.
    • Handle: RePEc:oup:oxecpp:v:74:y:2022:i:3:p:773-804.
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    File URL: http://hdl.handle.net/10.1093/oep/gpab033
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    Cited by:

    1. João Tovar Jalles & Youssouf Kiendrebeogo & Raphael Lam & Roberto Piazza, 2024. "Revisiting the countercyclicality of fiscal policy," Empirical Economics, Springer, vol. 67(3), pages 877-914, September.
    2. Choi, Sangyup & Willems, Tim & Yoo, Seung Yong, 2024. "Revisiting the monetary transmission mechanism through an industry-level differential approach," Journal of Monetary Economics, Elsevier, vol. 145(C).
    3. Choi, Sangyup & Furceri, Davide & Loungani, Prakash & Shim, Myungkyu, 2022. "Inflation anchoring and growth: The role of credit constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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