Fiscal Policy Uncertainty and Firms’ Production Efficiency: Evidence from China

Yuyang Zhao () and Xinyu Dong
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Yuyang Zhao: School of Public Policy and Administration, Xi’an Jiaotong University, Xi’an 710049, China
Xinyu Dong: School of Public Policy and Administration, Xi’an Jiaotong University, Xi’an 710049, China

Sustainability, 2024, vol. 16, issue 24, 1-24

Abstract: Total factor productivity (TFP) is pivotal to driving sustainable economic growth. This study examines the relationship between fiscal policy uncertainty (FPU) and firms’ TFP with the least squares method. We measure FPU at the provincial level using government work reports from various provinces in China with text analysis and find that a higher degree of FPU is negatively associated with local firms’ TFP. This effect is more significant for firms from regions with lower levels of marketization and government fiscal transparency and those with higher managerial myopia than for other firms. The channel tests show that FPU reduces local firms’ TFP by inhibiting corporate expansionary and research and development investments, and this effect is supported by the intensified financing constraints. Overall, our results suggest that FPU impairs local firms’ production efficiency.

Keywords: fiscal policy uncertainty; total factor productivity; corporate investment; financing constraints; production efficiency (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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