Seminar by Antonio De Vito

ROOM 45 - 4th FLOOR, Torre Portello C3, Via Bassi 1 - h 01.00pm

04.12.2019

Seminar by Antonio De Vito, IE Business School

Title: "Austerity Spillovers" - Join with Guosong Xu

Abstract: Fiscal policy shocks can propagate overseas through firms’ internal networks. We document this effect by showing that investment of a multinational’s subsidiary is highly sensitive to exogenous fiscal consolidations originated from a foreign country in which the multinational holds operations. We find that three mechanisms – within-firm production linkages, business confidence, and financial constraints – appear to generate the spillovers. In the aggregate, investment declines in the countries with higher exposure to foreign fiscal shocks through firms’ internal networks. Employment also drops, suggesting that these networks matter for the overall economic activity.