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

Author

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  • Espinoza Raphael

    (8385 International Monetary Fund , 700 19th St NW, Washington, DC 20431, USA)

  • Gamboa-Arbelaez Juliana

    (University of Minnesota, 3-133 Hanson Hall, 1925 Fourth Street South, Minneapolis, MN 55455, USA)

  • Sy Mouhamadou

    (8385 International Monetary Fund , 700 19th St NW, Washington, DC 20431, USA)

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 on leverage, liquidity constraint, and firm’s operating (labor) efficiency. In line with theory, public investment boosts private investment for firms with low leverage, but not for firms with high leverage, for firms that are financially constrained or that have low operating efficiency.

Suggested Citation

  • Espinoza Raphael & Gamboa-Arbelaez Juliana & Sy Mouhamadou, 2024. "The Fiscal Multiplier of Public Investment: The Role of Corporate Balance Sheet," The B.E. Journal of Macroeconomics, De Gruyter, vol. 24(1), pages 489-527, January.
    • Handle: RePEc:bpj:bejmac:v:24:y:2024:i:1:p:489-527:n:9
    DOI: 10.1515/bejm-2023-0077
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    More about this item

    Keywords

    public investment; private investment; fiscal multipliers; crowding in; crowding out; corporate balance sheet;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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