The Effects of Public Spending Composition on Firm Productivity

39 Pages Posted: 16 Mar 2013

See all articles by Richard Kneller

Richard Kneller

University of Nottingham

Florian Misch

ZEW – Leibniz Centre for European Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 6, 2013

Abstract

This paper exploits the unique institutional features of South Africa to estimate the impact of provincial public spending on health, education and transport on firm productivity. Our identification strategy is based on within industry-province differences between firms of the effects of public spending. We show that public spending composition affects firm productivity depending on the capital intensity of firms relative to the province-industry mean. Our data and empirical specification allow us to rule out that these results are affected by econometric problems that are commonly encountered when estimating the effects of social policy and by unobserved industry- or province-specific productivity shocks. In contrast to related existing microeconomic evidence, we take into account the government budget constraint so that our results have clear policy implications.

Keywords: Public Spending Composition, Productive Public Spending, Firm Productivity

JEL Classification: D24, H32, H72, O12

Suggested Citation

Kneller, Richard and Misch, Florian, The Effects of Public Spending Composition on Firm Productivity (March 6, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-014. Available at SSRN: https://ssrn.com/abstract=2233392 or http://dx.doi.org/10.2139/ssrn.2233392

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Florian Misch (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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