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The effects of public spending composition on firm productivity

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  • Kneller, Richard
  • Misch, Florian

Abstract

This paper exploits the unique institutional features of South Africa to estimate the impact of provincial public spending on health, education and transport on firm productivity. Our identification strategy is based on within industry-province differences between firms of the effects of public spending. We show that public spending composition affects firm productivity depending on the capital intensity of firms relative to the province-industry mean. Our data and empirical specification allow us to rule out that these results are affected by econometric problems that are commonly encountered when estimating the effects of fiscal policy and by unobserved industry- or province-specific productivity shocks. In contrast to related existing microeconomic evidence, we take into account the government budget constraint so that our results have clear policy implications.

Suggested Citation

  • Kneller, Richard & Misch, Florian, 2013. "The effects of public spending composition on firm productivity," ZEW Discussion Papers 13-014, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:13014
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    References listed on IDEAS

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    1. Norman Gemmell & Florian Misch & Blanca Moreno-Dodson, 2012. "Public Spending for Long-Run Growth: A Practitioners’ View," World Bank - Economic Premise, The World Bank, issue 99, pages 1-4, December.
    2. Kevin Hjortshøj O'Rourke & Richard S. Grossman & Madalina A. Ursu, 2013. "A monthly stock exchange index for Ireland, 1864-1930," Economics Series Working Papers 120, University of Oxford, Department of Economics.
    3. Gabor Bekes & Balazs Murakozy, 2005. "Firm behaviour and public infrastructure - The Case of Hungary," CERS-IE WORKING PAPERS 0504, Institute of Economics, Centre for Economic and Regional Studies.
    4. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
    5. Gabe, Todd M., 2003. "Local Fiscal Policy and Establishment Growth," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 33(1), pages 1-24.
    6. Cyrille Schwellnus & Jens Arnold, 2008. "Do Corporate Taxes Reduce Productivity and Investment at the Firm Level?: Cross-Country Evidence from the Amadeus Dataset," OECD Economics Department Working Papers 641, OECD Publishing.
    7. Jens Matthias Arnold & Aaditya Mattoo & Gaia Narciso, 2008. "Services Inputs and Firm Productivity in Sub-Saharan Africa: Evidence from Firm-Level Data," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 17(4), pages 578-599, August.
    8. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
    9. Jean-Jacques Dethier & Maximilian Hirn & Stéphane Straub, 2011. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," World Bank Research Observer, World Bank Group, vol. 26(2), pages 258-309, August.
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    Cited by:

    1. Era Dabla-Norris & Florian Misch & Duncan Cleary & Munawer Khwaja, 2020. "The quality of tax administration and firm performance: evidence from developing countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 514-551, June.
    2. Ahmed, Riaz, 2016. "Social infrastructure and productivity of manufacturing firms: Evidence from Pakistan," ZEW Discussion Papers 16-038, ZEW - Leibniz Centre for European Economic Research.
    3. Sanja Borkovic & Peter Tabak, 2018. "Public investment and corporate productivity in Croatia," Public Sector Economics, Institute of Public Finance, vol. 42(2), pages 171-186.
    4. Amin, Mohammad & Islam, Asif, 2015. "Are Large Informal Firms More Productive than the Small Informal Firms? Evidence from Firm-Level Surveys in Africa," World Development, Elsevier, vol. 74(C), pages 374-385.

    More about this item

    Keywords

    Public Spending Composition; Productive Public Spending; Firm Productivity;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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