NBER WORKING PAPER SERIES
FISCAL POLICY, PROFITS,
AND INVESTMENT
Alberto Alesina
Silvia Ardagna
Roberto Perotti
Fabio Schiantarelli
Working Paper 7207
http://www.nber.org/papers/w7207
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
July 1999
We are very grateful to participants at the macroeconomic seminar at Harvard and MIT, University of
Bologna, IGIER, the conference, “Empirical analysis of firms’ decisions” in Bergamo and, especially, to
Olivier Blanchard, Glenn Hubbard, and Serena Ng for very useful suggestions. We also thank Giovanni Olivei
for his comments and Miguel Braun for research assistance. This research was supported by an NSF grant
through the NBER; we thank both organizations for their support. All opinions expressed are those of the
authors and not those of the National Bureau of Economic Research.
© 1999 by Alberto Alesina, Silvia Ardagna, Roberto Perotti, and Fabio Schiantarelli. All rights reserved.
Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that
full credit, including © notice, is given to the source.
Fiscal Policy, Profits, and Investment
Alberto Alesina, Silvia Ardagna,
Roberto Perotti, and Fabio Schiantarelli
NBER Working Paper No. 7207
July 1999
ABSTRACT
This paper evaluates the effects of fiscal policy on investment using a panel of OECD
countries. In particular, we investigate how different types of fiscal policy affect profits and , as a
result, investment.
We find a sizable negative effect of public spending -- and in particular of its public wage
component -- on business investment. This result is consistent with 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
the effect of taxes. Our results have important implications for the so called “non-Keynesian” (i.e.
expansionary) effects of fiscal adjustments.
Alberto Alesina
Harvard University
324 Littauer
Cambridge, MA 02138
and NBER
aalesina@kuznets.fas.harvard.edu
Silvia Ardagna
Boston College
Department of Economics
Chestnut Hill, MA 02162
ardagna@bc.edu
Roberto Perotti
Columbia University
Department of Economics
New York , NY 10027
rp41@columbia.edu
Fabio Schiantarelli
Boston College
Department of Economics
Chestnut Hill, MA 02162
schianta@bc.edu
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