Firm-level Digitalization and Resilience to Shocks: Role of Fiscal Policy
IMF Working Papers, May 5, 2023
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- Firm-level Digitalization and Resilience to Shocks: Role of Fiscal Policy
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Bibliographic details
- Authors: Manabu Nose, Jiro Honda
- Published: May 5, 2023
- Series: IMF Working Papers
Research question and scope
- Central questions: Would digitalization at firm level strengthen firms’ resilience to shocks? Could fiscal policy promote firm-level digitalization?
- Empirical scope:
- Firm-level analysis uses Orbis data covering 1.8 million non-financial firms from 53 countries.
- Cross-country panel analysis covers 64 countries.
Methodology and data
- Firm-level analysis: local projection method applied to firm-level outcomes (sales, profit margin, employment) to estimate impacts of aggregate uncertainty shocks.
- Cross-country analysis: panel data regression to examine the impact of fiscal interventions on firms’ digitalization.
Key findings on resilience to shocks
- Differential effects of uncertainty shocks:
- Digitalized firms experience smaller drops in sales and profits following uncertainty shocks.
- Less-digitalized firms suffer larger and long-lasting negative effects ("long-lasting scars") on outcomes.
- Overall conclusion: firm-level digitalization helps strengthen firms’ resilience to shocks.
Fiscal policy implications and recommendations
- Fiscal interventions can play an important role in promoting firm-level digitalization.
- Policy measures suggested by the cross-country results:
- Align the tax regime on digital services with general taxation principles.
- Adopt competitive procurement rules on digital products.
- These fiscal measures could effectively support the promotion of firm-level digitalization.
Subjects and keywords
- 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
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- Working Paper