Does uncertainty matter for the fiscal consolidation and capital intensity nexus?

Ioannis Bournakis and Nelson R. Ramírez-Rondán

MPRA Paper from University Library of Munich, Germany

Abstract: The paper looks for non-linearities in the relationship between fiscal consolidation and capital intensity (capital per worker). To understand this nexus, we consider the broader state of the economy as it is represented by the degree of economic uncertainty. Based on a sample of 27 OECD countries over the period 1996-2019, we identify low and high uncertainty regimes within which the nature of the relationship between fiscal policy and capital intensity differs substantially. In the low uncertainty regime, fiscal tightening is either irrelevant or has a relatively small negative economic effect on the evolution of capital intensity. In the high uncertainty regime, the negative effect of fiscal tightening on capital intensity can be three times bigger in comparison to the effect in the low uncertainty regime. Our findings maintain a robust pattern of this relationship through a series of sensitivity tests.

Keywords: Fiscal policy; real sector; threshold model; panel data. (search for similar items in EconPapers)
JEL-codes: C33 D81 E62 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/111592/1/MPRA_paper_111592.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:111592

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().