Citation

Discussion Paper Details

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Title: Does Public Debt Crowd Out Corporate Investment? International Evidence

Author(s): Yi Huang, Ugo Panizza and Richard Varghese

Publication Date: May 2018

Keyword(s): credit constraints, Crowding out, investment and public debt

Programme Area(s): International Macroeconomics and Finance and Macroeconomics and Growth

Abstract: Using data for advanced and emerging economies, we show that there is a negative correlation between public debt and corporate investment. Industry-level regressions show that high levels of government debt are particularly damaging for industries that need more external financial resources. Firm-level regressions show that government debt increases the sensitivity of corporate investment to cash flow. These results indicate that the relationship between public debt and investment is likely to be causal and that public debt crowds out corporate investment by tightening credit constraints.

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Bibliographic Reference

Huang, Y, Panizza, U and Varghese, R. 2018. 'Does Public Debt Crowd Out Corporate Investment? International Evidence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12931