02413cas a2200313 a 4500 AALejournalIMF022588 230101c9999 xx r poo 0 0eng d 5.00 USD 9798400204845 1018-5941 BD-DhAAL BD-DhAAL Magud, Nicolas. The Return of Expansionary Austerity : Firms' Investment Response to Fiscal Adjustments in Emerging Markets / Nicolas Magud, Samuel Pienknagura. Washington, D.C. : International Monetary Fund, 2022. 1 online resource (55 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We study the response of corporate investment in Emerging Markets to unexpected fiscal shocks. We find that, although firm-level investment decreases on impact following unexpected public expenditure adjustments (classical Keynesian multiplier effect), it quickly rises above pre-shock levels. The rebound in investment is facilitated by fiscal space, flexible exchange rates, and more predictable fiscal policy. We also show that the composition of fiscal adjustments matters for investment's response-compared to public investment adjustments, reductions in public consumption lead to larger private investment contractions on impact, but drive private investment to above pre-shock levels. Finally, we exploit firm-level heterogeneity in several dimensions, including to show that corporate investment's recovery is stronger in firms in the tradable sector and in larger and less indebted firms, and to show that the long-run benefits to economic activity of the fiscal shock appear to outweigh its short-run costs. Mode of access: Internet Capital imf Fiscal Policies and Behavior of Economic Agents imf Intangible Capital imf Investment imf National Government Expenditures and Related Policies imf Pienknagura, Samuel. IMF Working Papers; Working Paper ;No. 2022/070 Full text available on IMF https://elibrary.imf.org/openurl?genre=journal&issn=1018-5941&volume=2022&issue=070 IMF e-Library