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How Does Fiscal Policy Affect Investment? Evidence from a Large Panel

Antonio Afonso and Joao Jalles

International Journal of Finance & Economics, 2015, vol. 20, issue 4, 310-327

Abstract: We assess the relevance of fiscal components for private and public investment using data for a large panel of 95 countries for the period 1970–2008. Accounting for the usual econometric pitfalls, our results suggest a negative effect of government expenditure and of government consumption spending on private investment. Interest payments and subsidies have a negative effect on both types of investment (particularly in emerging economies). Social security spending has a negative effect on private investment for the full and OECD samples, whereas government health spending has a positive and significant impact on private investment. Moreover, stronger fiscal numerical rules decrease public investment. Copyright © 2015 John Wiley & Sons, Ltd.

Date: 2015
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International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

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