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Liquidity and Firms’ Response to Fiscal Stimulus


  • We are particular grateful to Morten O. Ravn (Editor) and the two anonymous referees for valuable suggestions. We also thank Alfredo Del Monte, Tullio Jappelli, Tommaso Oliviero, Domenico Scalera, Annalisa Scognamiglio, Alberto Zazzaro and participants at SIE Annual Conference (2012), SIEPI Annual Conference (2013), REPOS summer school (2013) for useful comments.


A stimulus programme allowed firms in Italy to receive tax credits for R&D expenditure in 2009. Among traditional firms, liquidity is relevant to the response to the stimulus: recipients firms with relative large cash holdings raised R&D expenditure, while those with low liquidity did not vary it. High-tech firms did not change their total R&D, consistent with their tendency to smooth R&D expenditure through time, though they changed its composition in favour of outsourcing activity and to the detriment of employment. When the fiscal stimulus pushed R&D higher, it also induced a positive transitory effect on the firm's performance.