Public spending composition , productive public spending , firm productivity
Abstract:
This paper exploits the unique institutional features of South Africa
to estimate the impact of provincial public spending on health, edu-
cation and transport on firm productivity. Our identification strategy
is based on within industry-province differences between firms of the
effects of public spending. We show that public spending composi-
tion affects firm productivity depending on the capital intensity of
firms relative to the province-industry mean. Our data and empir-
ical specification allow us to rule out that these results are affected
by econometric problems that are commonly encountered when es-
timating the effects of fiscal policy and by unobserved industry- or
province-specific productivity shocks. In contrast to related existing
microeconomic evidence, we take into account the government budget
constraint so that our results have clear policy implications.
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