IMF Working Papers

Firm-level Digitalization and Resilience to Shocks: Role of Fiscal Policy

By Manabu Nose, Jiro Honda

May 5, 2023

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Manabu Nose, and Jiro Honda. Firm-level Digitalization and Resilience to Shocks: Role of Fiscal Policy, (USA: International Monetary Fund, 2023) accessed November 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Would digitalization at firm level strengthen firms’ resilience to shocks? And if so, could fiscal policy play any role to promote firm-level digitalization? This paper empirically explores answers to these questions. Based on a local projection method (using the Orbis data covering 1.8 million non-financial firms from 53 countries), we estimate the impacts of aggregate uncertainty shocks on firms’ sales, profit margin, and employment. The findings suggest that uncertainty shocks affect digitalized and less-digitalized firms very differently. Digitalized firms weather shocks better, with smaller drops in sales and profits, while less-digitalized ones are worse off, with long-lasting scars. Then we examine the impact of fiscal interventions to promote firms’ digitalization, using cross-country panel data (covering 64 countries). The result suggests that aligning the tax regime on digital services with general taxation principles and competitive procurement rules on digital products could effectively support the promotion of firm-level digitalization. Overall, our findings point that firm-level digitalization would help strengthen firms’ resilience to a shock, and fiscal interventions can play an important role to promote firm-level digitalization.

Subject: COVID-19, Digitalization, Economic sectors, Fiscal policy, Health, Services sector, Technology

Keywords: COVID firm Dynamics, COVID-19, Digital divide, Digitalization, Digitalized firm, Firm-level digitalization, Firms' digitalization, Fiscal policy, Global, Global economy, Resilience to shock, Services sector

Publication Details

  • Pages:

    35

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/095

  • Stock No:

    WPIEA2023095

  • ISBN:

    9798400241741

  • ISSN:

    1018-5941