Book

Description

Fiscal policy has become the leading instrument of macroeconomic management across transition and emerging economies. With it has come uncertainty about the level, the timing and the durability of taxes, public spending and public debt. This book asks what that uncertainty does to firms in an economy where bank credit, and not the capital market, is the marginal source of external finance. Drawing on more than seven hundred thousand articles from four Vietnamese-language archives, it constructs the first fiscal policy uncertainty index for Vietnam built from domestic sources. In doing so it documents a measurement problem that has not been reported elsewhere: in Vietnamese the ordinary word for tax is a constituent of the ordinary word for tariff, so an index built with the obvious keyword counts trade policy as fiscal policy. Merged with a panel of non-financial listed firms covering 2010 to 2025, the index yields a clear result. A one standard deviation rise in fiscal uncertainty reduces book leverage by an additional 0.49 percentage points for a firm one standard deviation more dependent on bank credit. The gap widens for four quarters and persists for at least six. The contraction runs through net debt issuance and a shortening of debt maturity rather than through collateral or through postponed investment. Fiscal uncertainty reaches firms as a credit supply phenomenon, which makes the predictability of the fiscal calendar a question of financial stability and not only of macroeconomic management. Written for researchers in corporate finance and macroeconomics, for graduate students, and for officials in ministries of finance and central banks, the book reports its null results as carefully as its findings. Four appendices set out the full construction of the index, so that the method can be carried to any economy where banks dominate and the bond market is thin.