The paper studies the relationship between public sector financial deficits, crowding-out of public sector capital formation and inflation in a number of small, classical macroeconomic models. This amounts to reworking some of the government budget constraint literature by including capacity...

The paper studies the relationship between public sector financial deficits, crowding-out of public sector capital formation and inflation in a number of small, classical macroeconomic models. This amounts to reworking some of the government budget constraint literature by including capacity...

Using data for advanced and emerging economies, we show that there is a negative correlation between public debt and corporate investment. Industry-level regressions show that high levels of government debt are particularly damaging for industries that need more external financial resources....