TY - GEN AB - In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm's likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China. AU - Huang, Yi AU - Pagano, Marco AU - Panizza, Ugo CY - Geneva DA - 2016 DA - 2016 DO - 10.71609/iheid-7f0f-4q91 DO - doi ID - 294613 L1 - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf L2 - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf L4 - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf LK - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf N2 - In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm's likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China. PB - The Graduate Institute of International and Development Studies PP - Geneva PY - 2016 PY - 2016 T1 - Public debt and private firm fundingevidence from Chinese cities TI - Public debt and private firm fundingevidence from Chinese cities UR - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf Y1 - 2016 ER -