Fiscal deficits and sub-sector stock market dynamics in Canada
Loading...
Date
2025-08
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of New Brunswick
Abstract
This study analyses the impact of fiscal deficits on Canadian sectoral stock markets using monthly data (2000-2025) and linear/nonlinear ARDL models. Fiscal stance is measured by the cyclically adjusted balance (CAB). Results show no short-run effects, but in the long run, Telecommunications and Information Technology respond negatively: a one-billion CAD rise in deficit lowers telecom stocks by 1.1 % and IT by 2.7%. Nonlinear results, however, reveal asymmetry in telecom, where deficits raise values by 2.4% while surpluses cut them by 2.8%, indicating differing investor reactions. Most sectors remain unaffected, but those tied to infrastructure and innovation are more sensitive. The findings suggest persistent deficits undermine confidence in tech but may temporarily support telecom through targeted spending. Thus, predictable fiscal policy with selective investment, is key to fostering growth in innovation-driven sectors.