The dominant borrower syndrome. Issue 49 (20th October 2016)

• Record Type: Journal Article
• Authors: Choudhary, M. Ali; Khan, Sajawal; Pasha, Farooq; Rehman, Muhammad
• Is Part Of: Applied economics. Volume 48:Issue 49(2016)
• Page Start: 4773
• Page End: 4782
• Publication Date: 2016-10-20
• Subjects: Commercial banks -- government borrowing -- crowding out; E44 -- E62; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2016.1164824
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: The financing channel of a fiscal stimulus matters for the size and the sign of the fiscal multiplier. We develop a general equilibrium model where a fiscal stimulus is partially bank-funded and the government becomes the dominant borrower from banks relative to entrepreneurs. This leads to a negative impact on credit spreads, investment and a contraction in output. We support our story with a structural vector autoregression for a sample of developing countries featuring the dominant borrower syndrome.