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Fiscal policy and TFP in the OECD: measuring direct and indirect effects

Gerdie Everaert (UGent) , Freddy Heylen (UGent) and Ruben Schoonackers (UGent)
(2015) EMPIRICAL ECONOMICS. 49(2). p.605-640
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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 modeling the access of countries to worldwide available technology as a function of fiscal policy and other variables. Empirically, we propose and implement a nonlinear version of the common correlated effects pooled (CCEP) estimator of Pesaran (Econometrica 74(4):967–1012, 2006). The estimation results show that through the direct channel, budget deficits harm TFP. A shift toward productive expenditures has a strong positive impact on TFP, whereas a shift toward 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.
Keywords
FOREIGN DIRECT-INVESTMENT, RESEARCH-AND-DEVELOPMENT, UNIT-ROOT TESTS, ECONOMIC-GROWTH, PANEL-DATA, SOCIAL-SECURITY, TECHNOLOGICAL DIFFUSION, DEVELOPMENT SPILLOVERS, NONSTATIONARY PANEL, DEPENDENT PANELS, Fiscal policy, TFP, Unobserved common factors, Panel data

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MLA
Everaert, Gerdie, Freddy Heylen, and Ruben Schoonackers. “Fiscal Policy and TFP in the OECD: Measuring Direct and Indirect Effects.” EMPIRICAL ECONOMICS 49.2 (2015): 605–640. Print.
APA
Everaert, Gerdie, Heylen, F., & Schoonackers, R. (2015). Fiscal policy and TFP in the OECD: measuring direct and indirect effects. EMPIRICAL ECONOMICS, 49(2), 605–640.
Chicago author-date
Everaert, Gerdie, Freddy Heylen, and Ruben Schoonackers. 2015. “Fiscal Policy and TFP in the OECD: Measuring Direct and Indirect Effects.” Empirical Economics 49 (2): 605–640.
Chicago author-date (all authors)
Everaert, Gerdie, Freddy Heylen, and Ruben Schoonackers. 2015. “Fiscal Policy and TFP in the OECD: Measuring Direct and Indirect Effects.” Empirical Economics 49 (2): 605–640.
Vancouver
1.
Everaert G, Heylen F, Schoonackers R. Fiscal policy and TFP in the OECD: measuring direct and indirect effects. EMPIRICAL ECONOMICS. Springer; 2015;49(2):605–40.
IEEE
[1]
G. Everaert, F. Heylen, and R. Schoonackers, “Fiscal policy and TFP in the OECD: measuring direct and indirect effects,” EMPIRICAL ECONOMICS, vol. 49, no. 2, pp. 605–640, 2015.
@article{5973903,
  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 modeling the access of countries to worldwide available technology as a function of fiscal policy and other variables. Empirically, we propose and implement a nonlinear version of the common correlated effects pooled (CCEP) estimator of Pesaran (Econometrica 74(4):967–1012, 2006). The estimation results show that through the direct channel, budget deficits harm TFP. A shift toward productive expenditures has a strong positive impact on TFP, whereas a shift toward 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.},
  author       = {Everaert, Gerdie and Heylen, Freddy and Schoonackers, Ruben},
  issn         = {0377-7332},
  journal      = {EMPIRICAL ECONOMICS},
  keywords     = {FOREIGN DIRECT-INVESTMENT,RESEARCH-AND-DEVELOPMENT,UNIT-ROOT TESTS,ECONOMIC-GROWTH,PANEL-DATA,SOCIAL-SECURITY,TECHNOLOGICAL DIFFUSION,DEVELOPMENT SPILLOVERS,NONSTATIONARY PANEL,DEPENDENT PANELS,Fiscal policy,TFP,Unobserved common factors,Panel data},
  language     = {eng},
  number       = {2},
  pages        = {605--640},
  publisher    = {Springer},
  title        = {Fiscal policy and TFP in the OECD: measuring direct and indirect effects},
  url          = {http://dx.doi.org/10.1007/s00181-014-0872-0},
  volume       = {49},
  year         = {2015},
}

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