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

Raphael Espinoza; Juliana Gamboa-Arbelaez; Mouhamadou Sy

doi:10.1515/bejm-2023-0077

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

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Veröffentlicht/Copyright: 5. März 2024

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Aus der Zeitschrift The B.E. Journal of Macroeconomics Band 24 Heft 1

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

JEL Classification: E22; E62; G31; G39; R42

Corresponding author: Mouhamadou Sy, 8385 International Monetary Fund , 700 19th St NW, Washington, DC 20431, USA, E-mail: MSy@imf.org

The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Acknowledgments

We would like to thank the editor of this journal and two anonymous referees for very insightful comments. The authors are also grateful for comments and suggestions from Nikolay Gueorguiev and Catherine Pattillo.

Appendix

Table 3:

Countries in firm-level sample.

Advanced economies	Emerging and developing countries
Austria	Argentina
Belgium	Bulgaria
Switzerland	Bosnia and Herzegovina
Czech Republic	Bolivia
Germany	Chile
Denmark	China
Spain	Colombia
Estonia	Croatia
Finland	Hungary
France	India
Greece	Kazakhstan
Iceland	St. Kitts and Nevis
Italy	Kosovo
Japan	Moldova
Korea	Mexico
Lithuania	North Macedonia
Luxembourg	Montenegro
Latvia	Poland
Malta	Paraguay
Netherlands	Romania
Portugal	Russia
Singapore	Serbia
Slovak Republic	Ukraine
Slovenia
Sweden
Taiwan

Notes: Forecast error data is available for at least a couple of years for every country except for Malta.

Table 4:

Variable definition.

Variable	Definition
Net investment rate	Annual change in tanglible fixed assets
Leverage	Non current liabilities diveded by total assets
Growth of sales	Annual change in sales
Size 1	Logarithm of total assets
Size 2	Logarithm of number of employees
Return on assets	Net profits after taxes divided by total assets
Current ratio	Current assets divided by current liabilities
Cash to assets	Cash flow divided by tangible fixed assets
Cash flow	Net income plus depreciation
Solvency	Cash flow divided by total liabilities
GDP growth	Annual change in GDP
Public investment forecast error	Difference between public investment forecast and actual public investment divided by actual public investment

Table 5:

Public investment and corporate investment: the role of leverage.

Forecast error
	(1)	(2)	(3)	(4)	(5)	(6)
Variables
Forecast error shock high leverage t = 5						0.0304
						(0.0594)
Forecast error shock low leverage t = 5						−0.1672^b
						(0.0717)
Forecast error shock high leverage t = 4					0.0116^a
					(0.0006)
Forecast error shock low leverage t = 4					0.0093^a
					(0.0007)
Forecast error shock high leverage t = 3				0.0018
				(0.0028)
Forecast error shock low leverage t = 3				0.0009
				(0.0018)
Forecast error shock high leverage t = 2			−0.0069^b
			(0.0027)
Forecast error shock low leverage t = 2			0.0016
			(0.0027)
Forecast error shock high leverage t = 1		−0.0132^a
		(0.0026)
Forecast error shock low leverage t = 1		0.0048
		(0.0031)
Forecast error shock high leverage t = 0	−0.0117^b
	(0.0046)
Forecast error shock low leverage t = 0	0.0117^a
	(0.0038)
Lag sales growth	0.0425^a	0.0380^a	0.0239^c	0.0097	0.0064	−0.0074
	(0.0059)	(0.0093)	(0.0125)	(0.0171)	(0.0168)	(0.0271)
Lag GDP growth	0.6758^b	0.8530	0.6243	0.1106	0.4497	0.9221^c
	(0.2717)	(0.5407)	(0.6065)	(0.5530)	(0.4149)	(0.4847)
Lag EBITDA to sales	−0.0000	−0.0000	−0.0000	−0.0000	−0.0000	−0.0000
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lag log of total employment	−0.0914^a	−0.1960^a	−0.2808^a	−0.3517^a	−0.3955^a	−0.4414^a
	(0.0106)	(0.0205)	(0.0253)	(0.0303)	(0.0357)	(0.0432)
Constant	0.3636^a	0.7797^a	1.1581^a	1.5194^a	1.7683^a	2.0233^a
	(0.0253)	(0.0519)	(0.0641)	(0.0826)	(0.1077)	(0.1364)
Observations	1,017,055	744,036	532,147	369,865	268,989	195,294
R ²	0.2020	0.3671	0.4913	0.5731	0.6538	0.7101

Notes: Robust standard errors in parentheses, ^a p < 0.01, ^b p < 0.05, ^c p < 0.1.

Table 6:

Public investment and corporate investment: the role of financial constraints.

Forecast errors
	(1)	(2)	(3)	(4)	(5)	(6)
Variables
Forecast error shock no constraint t = 0	−0.0376^a
	(0.0106)
Forecast error shock constraint t = 0	0.0154
	(0.0148)
Forecast error shock no constraint t = 1		−0.0044
		(0.0103)
Forecast error shock constraint t = 1		−0.0061
		(0.0095)
Forecast error shock no constraint t = 2			−0.0065
			(0.0113)
Forecast error shock constraint t = 2			−0.0106
			(0.0087)
Forecast error shock no constraint t = 3				0.0057
				(0.0098)
Forecast error shock constraint t = 3				−0.0035
				(0.0083)
Forecast error shock no constraint t = 4					0.0574^a
					(0.0120)
Forecast error shock constraint t = 4					0.0382^a
					(0.0098)
Forecast error shock no constraint t = 5						0.0982^b
						(0.0363)
Forecast error shock constraint t = 5						0.0853^a
						(0.0253)
Lag sales growth	0.0387^a	0.0364^a	0.0297^b	0.0096	0.0083	−0.0067
	(0.0051)	(0.0091)	(0.0115)	(0.0139)	(0.0154)	(0.0225)
Lag GDP growth	0.5003^c	0.5620	0.2669	−0.1829	0.4264	1.0094^b
	(0.2392)	(0.5137)	(0.5715)	(0.5147)	(0.3159)	(0.3567)
Lag EBITDA to sales	−0.0000	−0.0000	−0.0000	−0.0000	−0.0000	−0.0000
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lag log of total employment	−0.0882^a	−0.1825^a	−0.2602^a	−0.3349^a	−0.3816^a	−0.4481^a
	(0.0099)	(0.0213)	(0.0284)	(0.0323)	(0.0391)	(0.0470)
Constant	0.3470^a	0.7411^a	1.1098^a	1.4901^a	1.7301^a	2.0295^a
	(0.0221)	(0.0511)	(0.0688)	(0.0843)	(0.1124)	(0.1397)
Observations	627,758	445,196	308,895	211,342	151,100	108,251
R ²	0.2716	0.4125	0.5330	0.6212	0.6942	0.7422

Notes: Robust standard errors in parentheses, ^a p < 0.01, ^b p < 0.05, ^c p < 0.1

Table 7:

Public investment and corporate investment: the role of operational efficiency.

Forecast errors
	(1)	(2)	(3)	(4)	(5)	(6)
Variables
Forecast error shock low operational efficiency t = 0	−0.0050
	(0.0094)
Forecast error shock high operational efficiency t = 0	0.0030
	(0.0088)
Forecast error shock low operational efficiency t = 1		−0.0126
		(0.0080)
Forecast error shock high operational efficiency t = 1		−0.0040
		(0.0079)
Forecast error shock low operational efficiency t = 2			−0.0170^c
			(0.0092)
Forecast error shock high operational efficiency t = 2			−0.0038
			(0.0086)
Forecast error shock low operational efficiency t = 3				−0.0180^c
				(0.0087)
Forecast error shock high operational efficiency t = 3				−0.0012
				(0.0087)
Forecast error shock low operational efficiency t = 4					0.0159
					(0.0106)
Forecast error shock high operational efficiency t = 4					0.0331^a
					(0.0087)
Forecast error shock low operational efficiency t = 5						0.0447
						(0.0349)
Forecast error shock high operational efficiency t = 5						0.0650^c
						(0.0313)
Lag sales growth	0.0805^a	0.1187^a	0.1377^a	0.1438^a	0.1640^a	0.1759^a
	(0.0054)	(0.0070)	(0.0102)	(0.0178)	(0.0271)	(0.0395)
Lag GDP growth	0.4556	0.4500	0.0456	−0.6003	−0.2180	0.4998
	(0.2882)	(0.6774)	(0.8205)	(0.8389)	(0.5397)	(0.6679)
Lag EBITDA to sales	−0.0000	−0.0000	−0.0000	0.0000	−0.0000	−0.0000
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lag log of total employment	−0.0163^a	−0.0399^a	−0.0683^a	−0.0995^a	−0.1285^a	−0.1561^a
	(0.0038)	(0.0067)	(0.0092)	(0.0123)	(0.0146)	(0.0171)
Constant	0.1558^a	0.3337^a	0.5326^a	0.7424^a	0.9118^a	1.0576^a
	(0.0052)	(0.0136)	(0.0196)	(0.0232)	(0.0324)	(0.0496)
Observations	1,161,973	864,613	632,899	452,604	319,425	231,623
R ²	0.0211	0.0307	0.0373	0.0459	0.0608	0.0783

Notes: Robust standard errors in parentheses, ^a p < 0.01, ^b p < 0.05, ^c p < 0.1.

Table 8:

Public investment and corporate leverage: The role of financial constraints.

Leverage to public investment
	(1)	(2)	(3)	(4)	(5)	(6)
Variables
Public investment shock constraint t = 0	0.1517^b
	(0.0652)
Public investment shock no constrain t = 0	0.0879^a
	(0.0277)
Public investment shock constraint t = 1		0.1359^c
		(0.0737)
Public investment shock no constraint t = 1		0.1358^a
		(0.0324)
Public investment shock constraint t = 2			0.2600^a
			(0.0634)
Public investment shock no constraint t = 2			0.2380^a
			(0.0291)
Public investment shock constraint t = 3				0.2871^a
				(0.0609)
Public investment shock no constraint t = 3				0.2944^a
				(0.0498)
Public investment shock constraint = 4					0.2340^a
					(0.0433)
Public investment shock no constrain t = 4					0.3310^a
					(0.0430)
Public investment shock constrain t = 5						0.2624^a
						(0.0264)
Public investment shock no constraint t = 5						0.3484^a
						(0.0516)
Lag sales growth	0.0590^a	0.0913^a	0.0891^b	0.0819^b	0.0707^c	0.0630
	(0.0124)	(0.0226)	(0.0310)	(0.0295)	(0.0360)	(0.0442)
Lag GDP growth	0.9574^a	1.4418^a	1.6511^a	1.5212^b	1.4743^c	1.0942
	(0.1203)	(0.4036)	(0.5190)	(0.5773)	(0.8134)	(1.0471)
Lag EBITDA to sales	−0.0000	−0.0000	−0.0000	−0.0000	−0.0000	−0.0000
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lag log of total employment	0.0005	−0.0091	−0.0235	−0.0303	−0.0381	−0.0504
	(0.0130)	(0.0208)	(0.0268)	(0.0274)	(0.0322)	(0.0362)
Constant	0.2451^a	0.5041^a	0.7679^a	0.9953^a	1.2247^a	1.4640^a
	(0.0378)	(0.0643)	(0.0824)	(0.0861)	(0.1076)	(0.1253)
Observations	786,129	555,544	387,409	263,290	175,942	124,735
R ²	0.0032	0.0063	0.0105	0.0147	0.0198	0.0259

Notes: Robust standard errors in parentheses ^a p < 0.01, ^b p < 0.05, ^c p < 0.1.

Table 9:

Public investment and corporate investment: the role of leverage, manufacturing firms.

Public investment
	(1)	(2)	(3)	(4)	(5)	(6)
Variables
Public investment shock high leverage t = 5						−0.0481^c
						(0.0262)
Public investment shock low leverage t = 5						0.1088^a
						(0.0332)
Public investment shock high leverage t = 4					−0.0368
					(0.0225)
Public investment shock low leverage t = 4					0.0904^b
					(0.0304)
Public investment shock high leverage t = 3				−0.0384^b
				(0.0170)
Public investment shock low leverage t = 3				0.0870^a
				(0.0272)
Public investment shock high leverage t = 2			−0.0261^c
			(0.0143)
Public investment shock low leverage t = 2			0.0812^a
			(0.0242)
Public investment shock high leverage t = 1		−0.0116
		(0.0090)
Public investment shock low leverage t = 1		0.0434^b
		(0.0167)
Public investment shock high leverage t = 0	0.0018
	(0.0035)
Public investment shock low leverage t = 0	0.0225^a
	(0.0059)
Lag sales growth	0.0959^a	0.1469^a	0.1694^a	0.1841^a	0.2002^a	0.2075^a
	(0.0097)	(0.0120)	(0.0186)	(0.0327)	(0.0440)	(0.0594)
Lag GDP growth	0.5353^b	0.7185	0.5937	0.1859	0.1244	0.2517
	(0.2410)	(0.5414)	(0.7030)	(0.7640)	(0.7392)	(0.7962)
Lag EBITDA to sales	0.0000	−0.0000	0.0000	0.0000	−0.0000	−0.0000
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lag log of total employment	−0.0226^a	−0.0508^a	−0.0810^a	−0.1127^a	−0.1431^a	−0.1726^a
	(0.0039)	(0.0077)	(0.0115)	(0.0147)	(0.0174)	(0.0207)
Constant	0.1799^a	0.3741^a	0.5746^a	0.7822^a	0.9800^a	1.1635^a
	(0.0104)	(0.0219)	(0.0333)	(0.0420)	(0.0530)	(0.0683)
Observations	551,567	418,316	311,868	226,874	162,974	121,428
R ²	0.0254	0.0371	0.0430	0.0494	0.0639	0.0816

Notes: Robust standard errors in parentheses, ^a p < 0.01, ^b p < 0.05, ^c p < 0.1.

Table 10:

Public investment and corporate investment: the role of leverage, construction firms.

Public investment
	(1)	(2)	(3)	(4)	(5)	(6)
Variables
Public investment shock high leverage t = 5						−0.0722
						(0.0535)
Public investment shock low leverage t = 5						0.1607
						(0.1072)
Public investment shock high leverage t = 4					−0.0644^c
					(0.0357)
Public investment shock low leverage t = 4					0.1456^c
					(0.0706)
Public investment shock high leverage t = 3				−0.0616
				(0.0391)
Public investment shock low leverage t = 3				0.1304
				(0.0838)
Public investment shock high leverage t = 2			−0.0553^b
			(0.0248)
Public investment shock low leverage t = 2			0.1389^b
			(0.0539)
Public investment shock high leverage t = 1		−0.0248
		(0.0226)
Public investment shock low leverage t = 1		0.0813^c
		(0.0459)
Public investment shock high leverage t = 0	0.0040
	(0.0125)
Public investment shock low leverage t = 0	0.0195
	(0.0227)
Lag sales growth	0.0700^a	0.0975^a	0.1174^a	0.1064^a	0.1170^a	0.1192^a
	(0.0055)	(0.0067)	(0.0092)	(0.0165)	(0.0278)	(0.0341)
Lag GDP growth	1.2086^b	1.6557^c	1.3572	0.6486	0.4818	1.1544
	(0.4215)	(0.8072)	(0.9430)	(0.9361)	(0.7745)	(0.9752)
Lag EBITDA to sales	−0.0000	−0.0000	−0.0000	0.0000	0.0000	0.0000
	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lag log of total employment	−0.0216^a	−0.0500^a	−0.0833^a	−0.1226^a	−0.1547^a	−0.1774^a
	(0.0050)	(0.0079)	(0.0094)	(0.0127)	(0.0162)	(0.0185)
Constant	0.1777^a	0.3773^a	0.6080^a	0.8644^a	1.0805^a	1.2374^a
	(0.0117)	(0.0207)	(0.0238)	(0.0300)	(0.0416)	(0.0509)
Observations	329,290	235,396	165,863	113,932	76,931	53,700
R ²	0.0171	0.0271	0.0349	0.0451	0.0615	0.0764

Notes: Robust standard errors in parentheses, ^a p < 0.01, ^b p < 0.05, ^c p < 0.1.

Figure A1:

Linear effect of public investment on private firms’ costs of employees. Source: Authors’ estimates. Notes: The chart shows the results of the local projections method (Jorda 2005) of the effect of a shock to public investment on firm’s costs of employees. Costs of employees are normalized by operating revenue. The cumulative impulse responses (blue line) over a 6-year horizon are plotted. Confidence intervals are set at 95 % (dash lines).

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Received: 2023-05-15

Accepted: 2024-02-02

Published Online: 2024-03-05

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Artikel in diesem Heft

https://doi.org/10.1515/bejm-2023-0077

Schlagwörter für diesen Artikel

public investment; private investment; fiscal multipliers; crowding in; crowding out; corporate balance sheet