Fiscal Policy, Profits, and Investment

Alberto Alesina, Silvia Ardagna, Roberto Perotti and Fabio Schiantarelli

American Economic Review, 2002, vol. 92, issue 3, 571-589

Abstract: This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending—and in particular of its wage component—on profits and on business investment. This result is consistent with different theoretical 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 those of taxes. Our results can explain the so-called "non-Keynesian" (i.e., expansionary) effects of fiscal adjustments. (JEL E22, E62)

Date: 2002
Note: DOI: 10.1257/00028280260136255
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Related works:
Working Paper: Fiscal Policy, Profits, and Investment (2002)
Working Paper: Fiscal Policy, Profits, and Investment (2000)
Working Paper: Fiscal Policy, Profits and Investment (1999)
Working Paper: Fiscal Policy, Profits, and Investment (1999)
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