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This paper shows how the creation of ceilings on local public debt can increase economic activity. For identification, the paper exploits administrative micro data in conjunction with the introduction of a Mexican law limiting the amount of indebtedness of subnational governments. The analysis finds that states with ex-ante higher public debt have stronger economic growth after the implementation of the law, despite reducing public spending and increasing taxes, albeit at the expense of more extreme poverty. The mechanism for this result is a reduction in crowding out. In states with higher ex-ante public debt, banks reallocate credit away from local governments and into private firms, with strong positive firm-level real effects. The unwinding of this crowding out is stronger for more credit constrained firms and for firms borrowing from banks that are more exposed to local public debt. Furthermore, the impact of the law on economic growth is stronger in states allocating a larger share of public spending to non-infrastructure projects.

Banks --- Crowding Out --- Debt Markets --- Emerging Market Economies --- Finance and Financial Sector Development --- Fiscal Policy --- Governance --- Government Lending --- Local Government --- Public Debt --- Public Sector Development --- Subnational Debt

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Frequently, factors other than structural developments in technology and production efficiency drive changes in labor productivity in advanced and emerging market and developing economies (EMDEs). This paper uses a new method to extract technology shocks that excludes these influences, resulting in lasting improvements in labor productivity. The same methodology in turn is used to identify a stylized example of the effects of a demand shock on productivity. Technology innovations are accompanied by higher and more rapidly increasing rates of investment in EMDEs relative to advanced economies, suggesting that positive technological developments are often capital-embodied in the former economies. Employment falls in both advanced economies and EMDEs following positive technology developments, with the effect smaller but more persistent in EMDEs. Uncorrelated technological developments across economies suggest that global synchronization of labor productivity growth is due to cyclical (demand) influences. Demand drivers of labor productivity are found to have highly persistent effects in EMDEs and some advanced economies. Unlike technology shocks, however, demand shocks influence labor productivity only through the capital deepening channel, particularly in economies with low capacity for counter-cyclical fiscal policy. Overall, non-technological factors accounted for most of the fall in labor productivity growth during 2007-08 and around one-third of the longer-term productivity decline after the global financial crisis.

Advanced Economies --- Business Cycle --- Demand Driver --- Developing Economies --- Economic Growth --- Emerging Market Economies --- Emerging Markets --- Labor Markets --- Labor Productivity --- Macroeconomics and Economic Growth --- Private Sector Development --- Private Sector Economics --- Productivity Dynamics --- Science and Technology Development --- Technology --- Technology Diffusion --- Technology Innovation

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The deep recession in many of the emerging market transition economies of Europe and Central Asia caused by the COVID-19 crisis has raised fears of long-term damage to potential output through scarring and hysteresis. These economies were also hit hard by the great recession caused by the global financial crisis. This paper provides empirical estimates of the impact of the great recession on the subsequent medium-term level of real gross domestic product in a sample of 65 middle-income countries. It finds evidence of a significant hysteresis parameter in these countries. The paper also examines how the combination of a hysteresis parameter and a positive fiscal multiplier can mean that a countercyclical fiscal expansion that successfully mitigates the output loss in a recession need not worsen public debt levels in the medium to long term because of its positive impact on potential output and thus the tax base.

Business Cycles and Stabilization Policies --- Coronavirus --- Countercyclical Policy --- COVID-19 --- Economic Policy, Institutions and Governance --- Economic Recession --- Emerging Market Economies --- Fiscal and Monetary Policy --- Fiscal Policy --- Global Financial Crisis --- Hysteresis --- Macroeconomics and Economic Growth --- Pandemic Response --- Public Debt --- Public Sector Development