Fiscal counter-cyclicality and productive investment: evidence from advanced economies

Davide Furceri and Joao Jalles

The B.E. Journal of Macroeconomics, 2019, vol. 19, issue 1, 15

Abstract: We use a difference-in-difference approach to 25 industries for 18 advanced economies over the period 1985–2012 to examine the effect of fiscal counter-cyclicality on productive investment: (i) Research and Development (R&D), and (ii) Information and Communications Technology (ICT). The results show that fiscal counter-cyclicality increases R&D expenditure and the share of ICT capital in industries that are more financially constrained. Moreover, the effect is larger during recessions – when financing constraints are more likely to be binding – than during economic expansions. Our statistical method mitigates concerns about omitted variable bias and reverse causality. In addition, the results are robust to different measures of fiscal counter-cyclicality and to the inclusion of several controls.

Keywords: financial dependence; fiscal counter-cyclicality; industry-level data; recessions vs. expansions; time varying coefficients (search for similar items in EconPapers)
JEL-codes: E62 H50 H60 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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DOI: 10.1515/bejm-2017-0222

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