How do public investment and financial factors affect growth in a debt-overhang economy ?

Jean-Bernard Chatelain and Bruno Amable

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Abstract: In this paper, informational frictions lead to a rationing on the external finance of the firm in proportion to its internal net worth. We study the endogenously generated growth of an economy with heterogeneous firms facing a credit constraint. The productivity of individual firms is affected by the size of public infrastructures subject to congestion which are financed through taxes on profits. Growth will be influenced by the level of the interest rate through interest repayments (a debt-overhang problem) and by the tax rate. It is shown that there exists a growth-maximizing financing rule of public investment.

Keywords: Economic Growth; Public Infrastructures; Financial Constraints (search for similar items in EconPapers)
Date: 1997
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Published in The Manchester school of economic and social studies, 1997, 65 (3), pp.310 - 327. ⟨10.1111/1467-9957.00059⟩

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Related works:
Journal Article: How Do Public Investment and Financial Factors Affect Growth in a Debt-Overhang Economy? (1997)
Working Paper: How do public investment and financial factors affect growth in a debt-overhang economy ? (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00432135

DOI: 10.1111/1467-9957.00059

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