Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144486
Authors: 
Everaert, Gerdie
Heylen, Freddy
Schoonackers, Ruben
Year of Publication: 
2014
Series/Report no.: 
Working Paper Research 274
Abstract: 
This paper analyzes the direct and indirect effects of fiscal policy on total factor productivity (TFP) in a panel of OECD countries over the period 1970-2012. Our contribution is twofold. First, when estimating the impact of fiscal policy on TFP from a production function approach, we identify the worldwide available level of technology by exploiting the observed strong cross-sectional dependence between countries instead of using ad hoc proxies for technology. Second, next to direct effects, we allow for indirect effects of fiscal policy by modelling the access of countries to worldwide available technology as a function of fiscal policy and other variables. Empirically, we propose and implement a non-linear version of the Common Correlated Effects Pooled (CCEP) estimator of Pesaran (2006). The estimation results show that through the direct channel budget deficits harm TFP. A shift towards productive expenditures has a strong positive impact on TFP, whereas a shift towards social transfers reduces TFP. Through the indirect channel, significant positive effects on a country's access to global technology come from reducing the statutory corporate tax rate and from reducing barriers to trade.
Subjects: 
Fiscal policy
TFP
Unobserved Common Factors
Panel Data
JEL: 
C31
C33
E62
O38
Document Type: 
Working Paper

Files in This Item:
File
Size
628.4 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.