Cyclical fiscal policy, credit constraints, and industry growth

BIS Working Papers No 340
February 2011


This paper analyzes the impact of cyclical fiscal policy on industry growth. Using Rajan and Zingales' (1998) difference-in-difference methodology on a panel data sample of manufacturing industries across 15 OECD countries over the period 1980-2005, we show that industries with relatively heavier reliance on external finance or lower asset tangibility tend to grow faster (both in terms of value added and of labor productivity growth) in countries which implement more countercyclical fiscal policies.

JEL Classification: E32, E62

Keywords: growth, financial dependence, fiscal policy, countercyclicality