Fiscal Stabilization and Growth: Evidence from Industry-level Data for Advanced and Developing Economies

By Sangyup Choi, Davide Furceri, João Tovar Jalles

September 5, 2017

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Sangyup Choi, Davide Furceri, and João Tovar Jalles. Fiscal Stabilization and Growth: Evidence from Industry-level Data for Advanced and Developing Economies, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Medium-term growth can be enhanced by fiscal stabilization. However, to date, no systematic effort has been made to study the specific channels through which fiscal stabilization affects growth. This paper examines the effect of fiscal stabilization on industrial growth and how this effect depends on different technological characteristics. It does so by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 advanced and developing economies over the period 1970-2014. The results suggest that fiscal stabilization fosters growth in industries with: i) higher external financial dependence and lower asset fixity; ii) higher degree of labor intensity; iii) higher investment lumpiness and relationship-specific input usage. These effects tend to be larger during economic recessions. The results are robust to different measures of fiscal stabilization and the inclusion of various interactions between a broad set of macroeconomic variables and production technologies.

Subject: Depreciation, Fiscal policy, Fiscal stabilization, Labor, National accounts, Production, Productivity

Keywords: Aggregate demand, Asset fixity, Baseline result, Capital depreciation, Dependent variable, Depreciation, Developing economy, Differential effect, Effect of fiscal stabilization, External finance, Fiscal stabilization, Global, Growth, Industry-level data, Interaction effect, Option-value effect, Productivity, Technologies of production, Time varying coefficients, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/198
Stock No:

WPIEA2017198
ISBN:

9781484316726
ISSN:

1018-5941

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