Financial market imperfections, informality and government spending multipliers

• 成果类型: Article
• 署名作者: Kumar, Alok
• 署名单位: University of Victoria
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2023.103103
• 发表日期: 2023
• 关键词: Government investment; Government consumption; Financial market imperfections; Government spending multipliers; Informal sector; Financially-excluded entrepreneurs

摘要

Developing countries are characterized by underdeveloped financial markets and a large share of informal sector in economic activity. Evidence suggests that countries with less developed financial sector have lower government spending multipliers. This paper quantifies government spending multipliers in India using an estimated new-Keynesian DSGE model with two types of entrepreneurs: formal and informal and imperfect financial market. In the model, informal entrepreneurs are financially-excluded and the banking sector is monopolistically competitive featuring collateral constraint and sticky interest rates. Results show that the government consumption multiplier is significantly less than one at all horizons. The government investment multiplier is also significantly less than one at shorter horizons, but becomes approximately one at longer horizons.