Economic Policy Uncertainty

Weijie Luo ()
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Weijie Luo: Beijing International Studies University

Chapter Chapter 3 in Public-Private Partnership and Policy Uncertainty, 2025, pp 31-50 from Springer

Abstract: Abstract This paper analyzes the impact of economic policy uncertainty on firm performance. Utilizing a news-based index of economic policy uncertainty developed by Baker et al. (2016) and firm-level data in China, firm investment, employment, and revenue are found to be negatively associated with policy-related economic uncertainty. This negative relationship is weakened in state-owned enterprises (a fall in investment of 5.61%, employment growth of 0.09%, and sales growth of 0.31%) compared to that of non-state-owned enterprises (a fall in investment of 7.79%, employment growth of 0.14%, and sales growth of 0.34%). We explore several potential explanations and find evidence supporting that economic policy uncertainty reduces the incentives of firms to expand their operation through the mechanism of risk-taking, cash holdings and tax burden. Given this microscopic study on mechanisms, our analysis provides a reference for policy-makers to effectively reduce economic fluctuations.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-96-8074-0_3

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DOI: 10.1007/978-981-96-8074-0_3

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