Fiscal Consolidation and Firm Level Productivity: Evidence from Advanced Economies
IMF Working Papers, July 1, 2022
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- Fiscal Consolidation and Firm Level Productivity: Evidence from Advanced Economies
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Bibliographic details
- Authors: Maxwell Tuuli, Ngo Van Long
- Published: July 1, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400214462.001
Summary and main findings
- Study investigates the effect of fiscal consolidation on firm level productivity in 12 advanced economies by combining an updated dataset of fiscal consolidation measures with firm level productivity.
- Fiscal consolidation (i.e., discretionary tax hikes and spending cuts) is detrimental to firm level productivity in advanced economies.
- High levels of fiscal consolidation are particularly harmful to firm level productivity compared to lower levels of fiscal consolidation.
- Tax based fiscal consolidation hinders firm level productivity more compared to spending based fiscal consolidation.
- Implication: the size and composition of fiscal consolidation matter in understanding the relationship between fiscal consolidation and firm level productivity.
Scope, data, and methods (as described)
- Coverage: 12 advanced economies.
- Data: updated dataset of fiscal consolidation measures combined with firm level productivity data.
- Outcome of interest: firm level productivity (including Total Factor Productivity and production-related measures implied by subject keywords).
Policy-relevant implications
- Policymakers should consider both the size and composition of consolidation when designing fiscal adjustment programs because:
- Large consolidations have stronger negative effects on firm level productivity.
- Tax-based adjustments are more harmful to firm level productivity than spending-based adjustments.
- Fiscal consolidation strategies that rely more on spending adjustments may be less detrimental to firm-level productivity than tax-heavy approaches.
Subject tags and keywords (as provided)
- Subjects: Financial markets, Financial sector development, Fiscal consolidation, Fiscal policy, Production, Productivity, Total factor productivity
- Keywords: effect of fiscal consolidation, Financial sector development, firm level productivity, Fiscal consolidation, fiscal consolidation matter, fiscal consolidation measure, Global, Productivity, productivity dispersion, Spending, Taxes, Total Factor Productivity
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- Working Paper