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

By Raphael A Espinoza, Juliana Gamboa-Arbelaez, Mouhamadou Sy

September 25, 2020

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Raphael A Espinoza, Juliana Gamboa-Arbelaez, and Mouhamadou Sy. The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: 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.

Summary

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.

Subject: Corporate investment, Expenditure, Financial statements, National accounts, Private investment, Public financial management (PFM), Public investment and public-private partnerships (PPP), Public investment spending

Keywords: Balance sheet condition, Company observation, Constraint firm, Corporate balance sheet, Corporate investment, Crowding in, Crowding out, Financial statements, Firm level, Fiscal multipliers, Global, Investment shock, Net investment rate, Private investment, Public investment, Public investment and public-private partnerships (PPP), Public investment spending, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/199
Stock No:

WPIEA2020199
ISBN:

9781513557694
ISSN:

1018-5941

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