Cyclical Fiscal Policy, Credit Constraints, and Industry Growth

Aghion, Philippe; Hémous, David; Kharroubi, Enisse

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Cyclical Fiscal Policy, Credit Constraints, and Industry Growth

BIS Working Paper No. 340

58 Pages Posted: 7 Jun 2011

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

David Hémous

University of Zürich; Centre for Economic Policy Research (CEPR)

Enisse Kharroubi

Bank for International Settlements (BIS)

Date Written: February 2011

Abstract

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

Suggested Citation: Suggested Citation

Aghion, Philippe and Hemous, David and Kharroubi, Enisse, Cyclical Fiscal Policy, Credit Constraints, and Industry Growth (February 2011). BIS Working Paper No. 340, Available at SSRN: https://ssrn.com/abstract=1859149