The Impact of Fiscal and Industrial Policies on listed SMEs: Evidence from Germany and Italy

This paper measures the impact on small and medium sized enterprises (SMEs) of the Italian and German fiscal and industrial policies, implemented in reaction to the Global Financial crisis (2008) and the Eurozone sovereign crisis (2009). To assist policymakers in managing future periods of recession, the study reviews the different approaches of the two governments in supporting their local firms at times of crisis, by examining the measures issued in the yearly national budget plans from 2009 to 2019, under the assumption of a dovish European Central Bank (ECB). The paper adopts an innovative approach to compare two distinct policy stances conditioned by different fiscal capabilities, with the aim to assess the abilities and flaws of policymakers in reacting to the crises. The analysis relies on balance sheet data to investigate the development of SMEs performances in terms of four main categories: productivity, employment, investment, and competitiveness, which are promoted by the European Commission (EC) for a sound and resilient economic environment. By conducting an event study analysis around multiple policy events, the paper emphasizes on the importance of fiscal and industrial policy at times of recession, promoting a New-Keynesian approach as opposed to austerity measures. While policymakers in both the countries appeared to be successful in stimulating a recovery, the German government resulted more resolute in responding to the crisis, issuing pro-growth measures as opposed to the Italian conservative pro-stability ones. The results of the research will be of help for future policymakers as it provides insight on how to assist and support SMEs at times of crisis, with remarks that will be beneficial to both fiscally virtuous countries like Germany and fiscally constrained countries like Italy.