Impact of Public Debt, Deficit and Debt Financing on Private Investment in a Large Country: Evidence from the United States

Amir Kia ()
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Amir Kia: Finance and Economics Department, Utah Valley University

World Journal of Applied Economics, 2020, vol. 6, issue 2, 139-161

Abstract: This paper analyses the direct impact of fiscal variables on private investment. The current literature ignores one or more fiscal variables and, in many cases, the foreign financing of debt. In this paper, an aggregate investment function for an economy in which firms incur adjustment costs in their investment process is developed. The developed model incorporates the direct impact of government expenditure, public debt and investment, deficits and foreign-financed debt on private investment. The model is tested on US data. It is found that public investment does not have any impact on private investment, but government expenditure, deficit, debt and foreign-financed debt crowd out private investment over the long run. However, deficit crowds in the private investment over the short run.

Keywords: Private investment; Public debt; Deficit, Foreign-financed debt; Adjustment cost (search for similar items in EconPapers)
JEL-codes: E13 E22 H54 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ana:journl:v:6:y:2020:i:2:p:139-161

DOI: 10.22440/wjae.6.2.3

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