 Financial development, fiscal policy and volatility: Their effects on growthThe Journal of International Trade & Economic Development, 2014, vol. 23, issue 2, 223-266 Abstract: This paper analyzes how fiscal policies and credit constraints can affect the impact of macroeconomic volatility on long-run growth. The model by Aghion et al. (2005) is extended by allowing for governmental fiscal policy over the business cycle. The analysis shows that in an economy facing credit constraints, an increase in volatility will result in lower mean growth, and all the more the less financially developed and the more procyclical the fiscal policy is. The main implication is that in countries with lower degrees of financial development, countercyclical fiscal policies are particularly important in reducing the negative consequences of adverse aggregate shocks on firms' long-run investments. An empirical analysis is finally conducted using different groups of countries that confirm the theoretical predictions. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:23:y:2014:i:2:p:223-266 Ordering information: This journal article can be ordered from DOI: 10.1080/09638199.2012.711014 Access Statistics for this article The Journal of International Trade & Economic Development is currently edited by Pasquale Sgro, David E.A. Giles and Charles van Marrewijk More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.