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Fiscal Stabilization and Growth: Evidence from Industry-level Data for Advanced and Developing Economies
Author:
Sangyup Choi null

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Davide Furceri null

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João Tovar Jalles
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 198
Language:
English
Publication Date:
05 Sep 2017
DOI:
https://doi.org/10.5089/9781484316726.001
ISBN:
9781484316726
ISSN:
1018-5941
Pages:
48
Keywords:
WP; dependent variable; external finance; aggregate demand; capital depreciation; developing economy; interaction effect; industry-level data; fiscal stabilization; time varying coefficients; growth; technologies of production; asset fixity; baseline result; option-value effect; effect of fiscal stabilization; differential effect; Depreciation; Productivity; Global
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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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund