Borradores de Economia
Number:
1182
Published:
Authors:
Yasin Kursat Onder,
Sara Restrepo-Tamayo, 
Maria Alejandra Ruiz-Sanchez, 
Classification JEL:
E44, F34
Keywords:
regression discontinuity design (11617), Fiscal multipliers (11454), crowding-out channel (22697)
Abstract:
We investigate the impact of fiscal expansions on firm investment by exploiting
firms that have multiple banking relationships. Further, we conduct a localized
RDD approach and compare the lending behavior of banks that barely met and
missed the criteria of being a primary dealer, as well as barely winners and
losers at government auctions. Our results indicate that a 1 percentage point
increase in banks’ bonds-to-assets ratio decreases loans by up to 0.4%, which
leads to significant declines in firm investment, profits and wages. Our findings
are grounded in a quantitative model with financial and real sectors with which
we undertake a welfare analysis and compute the cost of government borrowing
on the overall economy.
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