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

Author: Espinoza Raphael A

Volume/Issue: Volume 2020 Issue 199

Publication date: September 2020

ISBN: 9781513557694

$18.00

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Topics covered in this book

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Investments and Securities-General , Public Finance , 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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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.