Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/201691 
Year of Publication: 
2018
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP08-2018
Publisher: 
Graduate Institute of International and Development Studies, Geneva
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.
Subjects: 
Investment
Public Debt
Crowding Out
Credit Constraints
JEL: 
E22
E62
H63
Document Type: 
Working Paper

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