The work plan of project FLASH was divided into 5 work packages. WP1 provides an extensive literature review and familiarization with fiscal consolidation policies in the euro area and US corporate taxation. WP2 involves data management of a new dataset based on the Competitiveness Research Network (CompNet) micro-level database, and Compustat data. WP3 is on training and analyses of econometrics and policy evaluation techniques. WP4 represents the core of the project and provides the main findings on the impact of fiscal consolidation on the real and financial activities across small and large firms. WP5 involves the dissemination of results.
1.2.1 Work Package 1: Literature review and familiarization with fiscal consolidation policies in the euro area. Through an extensive reading of papers and related reports, we defined flexible working arrangements into:
• Using existing narratively identified exogenous fiscal adjustments instead of using changes in the cyclically-adjusted primary balance (CAPB) to measure discretionary changes in fiscal policy.
• Using a Panel VARX model to estimate heterogeneous effects of fiscal consolidation on firms' balance sheets, instead of using the conventional approach such as: Panel SVAR models, Local Projection Techniques, 2SLS and Truncated Moving Average (MA) representation.
• Using growth rates of series instead of using the level variables or first-differenced variables.
• Using sectoral level data (2-digit NACE classification) for six EU countries (BE, DK, DU, FI, FR and IT).
• Distinguish between small and large firms based on the number of employees. In addition, distinguish between financial constraint and unconstraint firms based on conventional measures.
1.2.2 Work package 2: Data management of CompNET and Compustat datasets. Regarding CompNET data, we used the size and distinguished between small and large firms based on the number of employees. We also used two measures of financial constraints provided in the data (ICC and IFC indicators). Regarding Compustat data, we sorted firms into financially constrained and unconstrained using annual payout ratio, debt ratings, paper ratings, and Kaplan-Zingales index.
1.2.3 Work package 3: Training and analyses of econometrics and policy evaluation techniques. To further strengthen my time-series analysis and macroeconometric skills, I received training in econometrics and identification methods, at a recognized state-of-the-art facility, and benefited from the expertise of the research advisory team. I attended several training courses on econometrics and policy evaluation techniques and could incorporate and apply them to data analyses and applications.
1.2.4 Work package 4: Applications and results.
FLASH provides novel empirical evidence on the transmission of fiscal shocks to the firm's balance sheets. We find that tax-based fiscal consolidations lower firm-level employment and investment but raise labor productivity. We find that fiscal consolidations lower investment by small and financially constrained firms mostly. In addition, FLASH provides empirical evidence that constrained firms are significantly more responsive to ATRs than unconstrained firms, which are relatively more sensitive to MTRs. An important practical implication of project FLASH could be of interest to many different parties, such as institutional investors, corporate managers, policymakers and university scholars to evaluate the impact of changes in different tax rates on corporate decisions, in particular when the financial market is under stress.
1.2.5 Work package 5: Dissemination of results, including conferences, workshops, seminars, meetings and the elaboration of research papers for submission to journals. Project results were also presented in various situations and for different types of audiences. We organized a fiscal policy workshop to share findings of this project with researchers from both academia and industry. We brought together researchers with an interest in fiscal consolidation to discuss the contemporary challenges in fiscal policy.
