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Fiscal Stabilization and Growth; Evidence from Industry-level Data for Advanced and Developing Economies

Author

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

Abstract

Medium-term growth can be enhanced by fiscal stabilization. However, to date, no systematic effort has been made to study the specific channels through which fiscal stabilization affects growth. This paper examines the effect of fiscal stabilization on industrial growth and how this effect depends on different technological characteristics. It does so by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 advanced and developing economies over the period 1970-2014. The results suggest that fiscal stabilization fosters growth in industries with: i) higher external financial dependence and lower asset fixity; ii) higher degree of labor intensity; iii) higher investment lumpiness and relationship-specific input usage. These effects tend to be larger during economic recessions. The results are robust to different measures of fiscal stabilization and the inclusion of various interactions between a broad set of macroeconomic variables and production technologies.

Suggested Citation

  • Sangyup Choi & Davide Furceri & João Tovar Jalles, 2017. "Fiscal Stabilization and Growth; Evidence from Industry-level Data for Advanced and Developing Economies," IMF Working Papers 17/198, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/198
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    Cited by:

    1. World Bank Group, 2017. "Kenya Economic Update, December 2017," World Bank Other Operational Studies 29033, The World Bank.

    More about this item

    Keywords

    Financial data; Fiscal stabilization; Fiscal stabilization; Total factor productivity; Fiscal policy; Developed countries; Developing countries; Economic growth; industry-level data; time varying coefficients; growth; technologies of production; General;

    JEL classification:

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

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