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Cyclical fiscal policy, credit constraints, and industry growth

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  • Philippe Aghion
  • David Hemous
  • Enisse Kharroubi

Abstract

This paper analyzes the impact of cyclical fiscal policy on industry growth. Using Rajan and Zingales' (1998) difference-in-difference methodology on a panel data sample of manufacturing industries across 15 OECD countries over the period 1980-2005, we show that industries with relatively heavier reliance on external finance or lower asset tangibility tend to grow faster (both in terms of value added and of labor productivity growth) in countries which implement more countercyclical fiscal policies.

Suggested Citation

  • Philippe Aghion & David Hemous & Enisse Kharroubi, 2011. "Cyclical fiscal policy, credit constraints, and industry growth," BIS Working Papers 340, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:340
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    Keywords

    growth; financial dependence; fiscal policy; countercyclicality;
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