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The dominant borrower syndrome

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  • M. Ali Choudhary
  • Sajawal Khan
  • Farooq Pasha
  • Muhammad Rehman

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.

Suggested Citation

  • M. Ali Choudhary & Sajawal Khan & Farooq Pasha & Muhammad Rehman, 2016. "The dominant borrower syndrome," Applied Economics, Taylor & Francis Journals, vol. 48(49), pages 4773-4782, October.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:49:p:4773-4782
    DOI: 10.1080/00036846.2016.1164824
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    References listed on IDEAS

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    Cited by:

    1. Abdul Jalil, 2021. "Austerity: Which Way Now?," PIDE Knowledge Brief 2021:21, Pakistan Institute of Development Economics.

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