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Firm Size and Public Investment Multipliers : Micro Evidence from Peru

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  • Guillermo Javier Vuletin
  • James Sampi
  • J.T. Araujo

Abstract

This paper examines how the concentration of large firms influences the fiscal multiplier effects of public investment in transport infrastructure. Using data from 1,891 Peruvian municipalities and firm-level information, the analysis exploits a quasi-experimental setting stemming from an exogenous change in the Municipality Compensation Fund in 2010, Peru's primary fiscal transfer mechanism from the central government to subnational authorities. The findings show that public investment generates a positive fiscal multiplier four years after implementation, with a temporary adjustment occurring two years earlier. The multiplier is significantly higher in municipalities with a greater concentration of large firms, highlighting the role of firm concentration in amplifying fiscal shocks. These results suggest that fiscal resources may be more effectively targeted to municipalities with a higher concentration of large firms, where the impact of public investment is stronger, and that policies promoting firm growth can enhance the effectiveness of fiscal policy by increasing the multiplier.

Suggested Citation

  • Guillermo Javier Vuletin & James Sampi & J.T. Araujo, 2024. "Firm Size and Public Investment Multipliers : Micro Evidence from Peru," Policy Research Working Paper Series 10997, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10997
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