Heterogenous Gains from Countercyclical Fiscal Policy: New Evidence from International Industry-level Data

Sangyup Choi, Davide Furceri and Joao Jalles

No GRU_2020_015, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

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 nine industry characteristics that we consider based on different theoretical channels, we find that the credit constraint channel—proxied by asset fixity—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.

Keywords: countercyclical fiscal policy; time-varying coefficients; industry growth, technologies of production, credit constraints (search for similar items in EconPapers)
JEL-codes: E62 H50 H60 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020-07-03
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-tid
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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232020-015%20Choi.pdf (application/pdf)

Related works:
Journal Article: Heterogeneous gains from countercyclical fiscal policy: new evidence from international industry-level data* (2022)
Working Paper: Heterogenous Gains from Countercyclical Fiscal Policy: New Evidence from International Industry-level Data (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2020_015

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