Heterogeneous gains from countercyclical fiscal policy: new evidence from international industry-level data*

Optimal investment with costly reversibility

Sangyup Choi, Davide Furceri and Joao Jalles

Oxford Economic Papers, 2022, vol. 74, issue 3, 773-804

Abstract: Empirical evidence to date suggests a positive relationship between fiscal policy countercyclicality and growth. But do all industries gain equally from countercyclical fiscal policy? What are the channels through which countercyclical fiscal policy affects industry-level growth? We answer these questions by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 countries—including both advanced and developing economies—during the period 1970–2014. Among the various industry characteristics guided by different theoretical channels, we find that the credit constraints channel identifies the best transmission mechanism through which countercyclical fiscal policy enhances growth. This channel becomes stronger during periods of weak economic activity when credit constraints are more likely to bind and periods of effective lower bound on the monetary policy rate.

JEL-codes: E62 H50 H60 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Heterogenous Gains from Countercyclical Fiscal Policy: New Evidence from International Industry-level Data (2020)
Working Paper: Heterogenous Gains from Countercyclical Fiscal Policy: New Evidence from International Industry-level Data (2020)
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