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  3. American Economic Review
  4. June 2002
  5. Fiscal Policy, Profits, and Investment

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Fiscal Policy, Profits, and Investment

  • Alberto Alesina
  • Silvia Ardagna
  • Roberto Perotti
  • Fabio Schiantarelli
American Economic Review
vol. 92, no. 3, June 2002
(pp. 571–589)
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Abstract

This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending—and in particular of its wage component—on profits and on business investment. This result is consistent with different theoretical models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than those of taxes. Our results can explain the so-called "non-Keynesian" (i.e., expansionary) effects of fiscal adjustments. (JEL E22, E62)

Citation

Alesina, Alberto, Silvia Ardagna, Roberto Perotti, and Fabio Schiantarelli. 2002. "Fiscal Policy, Profits, and Investment ." American Economic Review, 92 (3): 571–589. DOI: 10.1257/00028280260136255

JEL Classification

  • E62 Fiscal Policy
  • E22 Capital; Investment; Capacity
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital