TY  - JOUR
AU  - Aghion,Philippe
AU  - Hemous,David
AU  - Kharroubi,Enisse
TI  - Credit Constraints, Cyclical Fiscal Policy and Industry Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15119
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15119
L1  - http://www.nber.org/papers/w15119.pdf
N1  - Author contact info:
Philippe Aghion
Department of Economics
Harvard University
1805 Cambridge St
Cambridge, MA 02138
Tel: 617/495-6675
Fax: 617/495-4341
E-Mail: paghion@fas.harvard.edu

David Hemous
Harvard University
E-Mail: hemous@fas.harvard.edu

Enisse Kharroubi
International Affairs Department
Banque de France
1, rue de la Vrilliere
75049 Paris cedex 01
FRANCE
E-Mail: enisse.kharroubi@banque-france.fr
AB  - This paper evaluates whether the cyclical pattern of fiscal policy can affect growth. We first build a simple endogenous growth model where entrepreneurs can invest either in short-run projects or in long-term growth enhancing projects. Long-term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short-run profits. By increasing firms' market size in recessions, a countercyclical fiscal policy will boost investment in productivity-enhancing long-term projects, and the more so in sectors that rely more on external financing or which display lower asset tangibility. Second, the paper tests this prediction using Rajan and Zingales (1998)'s diff-and-diff methodology on a panel data sample of manufacturing industries across 17 OECD countries over the period 1980-2005. The evidence confirms that the positive effects of a more countercyclical fiscal policy on value added growth, productivity growth, and R&D expenditure, are indeed larger in industries with heavier reliance on external finance or lower asset tangibility.
ER  -