The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet

32 Pages Posted: 30 Oct 2020

See all articles by Raphael A. Espinoza

Raphael A. Espinoza

International Monetary Fund (IMF)

Juliana Gamboa-Arbelaez

Central Bank of Columbia

Mouhamadou Sy

International Monetary Fund (IMF)

Date Written: September 2020

Abstract

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.

Keywords: Public investment and public-private partnerships (PPP), Public investment spending, Private investment, Financial statements, Corporate investment, WP, net investment rate, balance sheet condition, constraint firm, graphic tag0, firm level

JEL Classification: E22, E62, G31, R42, H54, H83, G30

Suggested Citation

Espinoza, Raphael A. and Gamboa-Arbelaez, Juliana and Sy, Mouhamadou, The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet (September 2020). IMF Working Paper No. 20/199, Available at SSRN: https://ssrn.com/abstract=3721223

Raphael A. Espinoza (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://oxford.academia.edu/RaphaelEspinoza

Juliana Gamboa-Arbelaez

Central Bank of Columbia ( email )

Bogota
Colombia

Mouhamadou Sy

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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