Fiscal Consolidation and Firm Growth in Developing Countries: Evidence from Firm-Level Data

Hildebrando Pahula, Sailesh Tanna and Glauco De Vita

Journal of Development Studies, 2024, vol. 60, issue 2, 245-266

Abstract: Despite a longstanding debate around the economic effects of fiscal consolidation policies, relatively few studies have focused on developing countries, and even fewer have paid attention to the growth implications at firm level. Using a unique narrative dataset based on contemporaneous policy documents to identify changes in fiscal policy aimed at reducing the accumulation of public debt, we investigate the effects of fiscal consolidation on the growth of 118,279 firms in 98 developing countries from 2006 to 2018. The results indicate that a one percentage point increase in fiscal consolidation as a share of GDP leads, on average, to a decline in firm growth of 3.97 percentage points. This decline is reduced when consolidation is large. We also find that debt-driven consolidation based on tax hikes is more contractionary than that based on spending cuts, though this contractionary effect is mitigated when spending cuts exceed 1.5 percent of GDP. While the negative effect of fiscal consolidation on firm performance is more pronounced in large and non-exporting firms, the effect is not statistically important in low-debt-risk developing countries.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00220388.2023.2265523 (text/html)
Access to full text is restricted to subscribers.

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:taf:jdevst:v:60:y:2024:i:2:p:245-266

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/FJDS20

DOI: 10.1080/00220388.2023.2265523

Access Statistics for this article

Journal of Development Studies is currently edited by Howard White, Oliver Morrissey and Ken Shadlen

More articles in Journal of Development Studies from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().