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The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet
Author:
Mr. Raphael A Espinoza
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Juliana Gamboa-Arbelaez null

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Mouhamadou Sy null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 199
Language:
English
Publication Date:
25 Sep 2020
DOI:
https://doi.org/10.5089/9781513557694.001
ISBN:
9781513557694
ISSN:
1018-5941
Pages:
31
Keywords:
WP; net investment rate; balance sheet condition; constraint firm; firm level; company observation; investment shock; Public investment spending; Public investment and public-private partnerships (PPP); Private investment; Financial statements; Corporate investment; Global; Public investment; fiscal multipliers; crowding in; crowding out; corporate balance sheet
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper explores whether public investment crowds out or crowds in private investment. To this aim, we build a database of about half a million firms from 49 countries. We find that the effect of public investment on corporate investment depends both on leverage and financial constraints. Public investment boosts private investment for firms with low leverage. However, for firms with high leverage, private investment does not react to an increase in public investment, in line with theory (Myers 1977). We also find that the effect of public investment on corporate investment is much weaker for firms that are financially constrained.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund