Fiscal Policy, Profits, and Investment

Alberto Alesina (), Silvia Ardagna, Roberto Perotti () and Fabio Schiantarelli ()
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Silvia Ardagna: Wellesley College

No 504, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. In particular, we investigate how different types of fiscal policy affect profits and , as a result, investment. We find a sizable negative effect of public spending -- and in particular of its public wage component -- on business investment. This result is consistent with models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than the effect of taxes. Our results have important implications for the so called 'Non-Keynesian' (i.e. expansionary) effects of fiscal adjustments.

Keywords: fiscal policy; profits; investment (search for similar items in EconPapers)
JEL-codes: E22 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pub
Date: 2000-07-31
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Published, American Economic Review, 2002, 92:571-589

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Related works:
Working Paper: Fiscal Policy, Profits, and Investment (1999)
Working Paper: Fiscal Policy, Profits and Investment (1999)
Journal Article: Fiscal Policy, Profits, and Investment (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:boc:bocoec:504

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