The Effect of Policy Uncertainty on Investment Plans: Evidence from the Unexpected Acceptance of a Far-Reaching Referendum in Switzerland

35 Pages Posted: 9 Jun 2016

See all articles by Klaus Abberger

Klaus Abberger

ETH Zurich - KOF Swiss Economic Institute

Andreas Dibiasi

EURAC Research; ETH Zurich - KOF Swiss Economic Institute

Michael Siegenthaler

ETH Zurich - KOF Swiss Economic Institute

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2016

Abstract

Does increased policy uncertainty dampen investment plans of firms? We provide direct evidence on this question by examining the effects of an unexpectedly accepted and farreaching referendum in Switzerland in February 2014. The vote has put several economically relevant agreements between Switzerland and its main trading partner, the European Union, at stake. Using firm-level survey data levied before and after the vote, we examine whether firms that reported to be affected by the induced policy uncertainty have revised their investment plans differently from those that did not perceive an increase in uncertainty. We find strong evidence that an increase in policy uncertainty does lead firms to reduce their investment plans. As theoretically expected, these effects are concentrated among those firms that view their investments as largely irreversible. Moreover, the uncertainty shock mainly dampened firms’ plans to extend their production capacities, while other types of investment such as replacement investment were not affected.

Keywords: investment, uncertainty, irreversibility, business survey

JEL Classification: D810, D840, E220

Suggested Citation

Abberger, Klaus and Dibiasi, Andreas and Siegenthaler, Michael and Sturm, Jan-Egbert, The Effect of Policy Uncertainty on Investment Plans: Evidence from the Unexpected Acceptance of a Far-Reaching Referendum in Switzerland (May 2016). CESifo Working Paper Series No. 5887. Available at SSRN: https://ssrn.com/abstract=2791396

Klaus Abberger

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Andreas Dibiasi

EURAC Research ( email )

Viale Druso, 1
Drususallee 1
Bolzano / Bozen, 39100
Italy

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Michael Siegenthaler

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Jan-Egbert Sturm (Contact Author)

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

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