Cyclical Fiscal Policy, Credit Constraints, and Industry Growth
58 Pages Posted: 7 Jun 2011
Date Written: February 2011
This paper analyzes the impact of cyclical fiscal policy on industry growth. Using Rajan and Zingales' (1998) difference-in-difference methodology on a panel data sample of manufacturing industries across 15 OECD countries over the period 1980-2005, we show that industries with relatively heavier reliance on external finance or lower asset tangibility tend to grow faster (both in terms of value added and of labor productivity growth) in countries which implement more countercyclical fiscal policies.
Keywords: growth, financial dependence, fiscal policy, countercyclicality
JEL Classification: E32, E62
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