Working Paper: NBER ID: w7207
Authors: Alberto Alesina; Silvia Ardagna; Roberto Perotti; Fabio Schiantarelli
Abstract: This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. In particular, we investigate how different types of fiscal policy affect profits and , as a result, investment. We find a sizable negative effect of public spending -- and in particular of its public wage component -- on business investment. This result is consistent with models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than the effect of taxes. Our results have important implications for the so called 'Non-Keynesian' (i.e. expansionary) effects of fiscal adjustments.
Keywords: Fiscal Policy; Investment; Profits; OECD Countries
JEL Codes: E62; H30; H50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public Spending (H59) | Profits (D33) |
| Profits (D33) | Investment (G31) |
| Public Spending (H59) | Investment (G31) |
| Taxation (H20) | Profits (D33) |
| Taxation (H20) | Investment (G31) |
| Public Spending Cuts (H69) | Investment (G31) |