Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation
This paper shows expansionary fiscal austerity via reallocation of credit supply, but with a raise in poverty. For identification, the paper exploits the introduction of a Mexican law limiting the debt of subnational governments along with matched credit register, firm, bank, and state datasets...
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| Format: | Working Paper |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/147941620675969963/Expansionary-Austerity-Reallocating-Credit-Amid-Fiscal-Consolidation http://hdl.handle.net/10986/35568 |
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okr-10986-355682022-09-20T00:09:30Z Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation Morais, Bernardo Perez-Estrada, Javier Peydró, José-Luis Ruiz-Ortega, Claudia FISCAL POLICY GOVERNMENT LENDING SUBNATIONAL DEBT CROWDING OUT EMERGING MARKET ECONOMIES BANKS PUBLIC DEBT This paper shows expansionary fiscal austerity via reallocation of credit supply, but with a raise in poverty. For identification, the paper exploits the introduction of a Mexican law limiting the debt of subnational governments along with matched credit register, firm, bank, and state datasets. After the law, states with higher ex ante public debt grow substantially faster, despite larger fiscal consolidation (higher taxes and lower public expenditure). Banks operating in more indebted states reallocate credit supply away from local governments into private firms, with stronger effects for banks with higher exposure to local public debt, consistent with lowering crowding out. Effects only happen after the law, not before, and there are strong firm-level real effects associated. The reduction of crowding out is stronger for financially constrained firms and for firms operating in states with higher ex ante public spending on social services over infrastructure projects. In states more affected by the law, despite better economic effects, extreme poverty increases––especially in states with higher ex ante public spending on social services over infrastructure––consistent with a strong reduction for social services during the fiscal consolidation. 2021-05-13T16:18:13Z 2021-05-13T16:18:13Z 2021-05 Working Paper http://documents.worldbank.org/curated/en/147941620675969963/Expansionary-Austerity-Reallocating-Credit-Amid-Fiscal-Consolidation http://hdl.handle.net/10986/35568 English Policy Research Working Paper;No. 9655 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
FISCAL POLICY GOVERNMENT LENDING SUBNATIONAL DEBT CROWDING OUT EMERGING MARKET ECONOMIES BANKS PUBLIC DEBT |
| spellingShingle |
FISCAL POLICY GOVERNMENT LENDING SUBNATIONAL DEBT CROWDING OUT EMERGING MARKET ECONOMIES BANKS PUBLIC DEBT Morais, Bernardo Perez-Estrada, Javier Peydró, José-Luis Ruiz-Ortega, Claudia Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation |
| geographic_facet |
Latin America & Caribbean Mexico |
| relation |
Policy Research Working Paper;No. 9655 |
| description |
This paper shows expansionary fiscal austerity via reallocation
of credit supply, but with a raise in poverty. For
identification, the paper exploits the introduction of a
Mexican law limiting the debt of subnational governments
along with matched credit register, firm, bank, and state
datasets. After the law, states with higher ex ante public debt
grow substantially faster, despite larger fiscal consolidation
(higher taxes and lower public expenditure). Banks operating
in more indebted states reallocate credit supply away
from local governments into private firms, with stronger
effects for banks with higher exposure to local public debt,
consistent with lowering crowding out. Effects only happen
after the law, not before, and there are strong firm-level real
effects associated. The reduction of crowding out is stronger
for financially constrained firms and for firms operating in
states with higher ex ante public spending on social services
over infrastructure projects. In states more affected
by the law, despite better economic effects, extreme poverty
increases––especially in states with higher ex ante public
spending on social services over infrastructure––consistent
with a strong reduction for social services during the fiscal
consolidation. |
| format |
Working Paper |
| author |
Morais, Bernardo Perez-Estrada, Javier Peydró, José-Luis Ruiz-Ortega, Claudia |
| author_facet |
Morais, Bernardo Perez-Estrada, Javier Peydró, José-Luis Ruiz-Ortega, Claudia |
| author_sort |
Morais, Bernardo |
| title |
Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation |
| title_short |
Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation |
| title_full |
Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation |
| title_fullStr |
Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation |
| title_full_unstemmed |
Expansionary Austerity : Reallocating Credit Amid Fiscal Consolidation |
| title_sort |
expansionary austerity : reallocating credit amid fiscal consolidation |
| publisher |
World Bank, Washington, DC |
| publishDate |
2021 |
| url |
http://documents.worldbank.org/curated/en/147941620675969963/Expansionary-Austerity-Reallocating-Credit-Amid-Fiscal-Consolidation http://hdl.handle.net/10986/35568 |
| _version_ |
1764483345653170176 |