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

Espinoza Raphael (), Gamboa-Arbelaez Juliana () and Sy Mouhamadou ()
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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

The B.E. Journal of Macroeconomics, 2024, vol. 24, issue 1, 489-527

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.

Keywords: public investment; private investment; fiscal multipliers; crowding in; crowding out; corporate balance sheet (search for similar items in EconPapers)
JEL-codes: E22 E62 G31 G39 R42 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejm-2023-0077

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