Fiscal Counter-cyclicality and Productive Investment: Evidence from Advanced Economies
JOURNAL
The B.E. Journal of Macroeconomics
YEAR
Jun 4, 2019
TYPE
Articles in journals
AUTHORS
Furceri, D., Jalles, J.
VOL Nº
19(1)
PAGES
1-15
ABSTRACT
We use a difference-in-difference approach to 25 industries for 18 advanced economies over the period 1985–2012 to examine the effect of fiscal counter-cyclicality on productive investment: (i) Research and Development (R&D), and (ii) Information and Communications Technology (ICT). The results show that fiscal counter-cyclicality increases R&D expenditure and the share of ICT capital in industries that are more financially constrained. Moreover, the effect is larger during recessions – when financing constraints are more likely to be binding – than during economic expansions. Our statistical method mitigates concerns about omitted variable bias and reverse causality. In addition, the results are robust to different measures of fiscal counter-cyclicality and to the inclusion of several controls.
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