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The Investment-Finance Link, Investment and U.S. Fiscal Policy in the 1990s

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  • Steven M. Fazzari

Abstract

Fazzari offers evidence that policies aimed at stimulating private sector investment through interest rate reductions are, at best, misguided. He concludes that because of the nebulous effect of interest rates on investment, while there may be benefits from policies aimed at increasing saving or lowering the budget deficit, a higher level of business investment is not one of them. Rather, because of the sizable effects of the business cycle and financial channels on investment, such a program will weaken the economy in the short run and curtail investment, with lower interest rates having little counteracting effect. A similar argument can be made about programs that attempt to reduce interest rates by promoting a rise in saving. If policymakers aspire to raise investment, they should look to actions that affect firms' access to internal finance directly, such as an investment tax credit.

Suggested Citation

  • Steven M. Fazzari, "undated". "The Investment-Finance Link, Investment and U.S. Fiscal Policy in the 1990s," Economics Public Policy Brief Archive 9, Levy Economics Institute.
    • Handle: RePEc:lev:levppb:9
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    File URL: https://www.levyinstitute.org/pubs/ppb9.pdf
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    Cited by:

    1. Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, 1994. "Community-based Factoring Companies and Small Business Lending," Economics Working Paper Archive wp_108, Levy Economics Institute.
    2. L. Randall Wray, "undated". "Why Does The Fed Want Slower Growth?," Economics Policy Note Archive 00-7, Levy Economics Institute.
    3. Dimitri B. Papadimitriou & L. Randall Wray, 1996. "The Consumer Price Index As a Measure of Inflation," Economics Working Paper Archive wp_164, Levy Economics Institute.
    4. Daniele Girardi, 2017. "Old and new formulations of the neoclassical theory of aggregate investment : a critical review," UMASS Amherst Economics Working Papers 2017-03, University of Massachusetts Amherst, Department of Economics.
    5. Neil H. Buchanan, 1996. "Taxes, Saving, and Macroeconomics," Economics Working Paper Archive wp_177, Levy Economics Institute.
    6. Dimitri B. Papadimitriou & L. Randall Wray, 2021. "Still Flying Blind after All These Years: The Federal Reserve's Continuing Experiments with Unobservables," Economics Public Policy Brief Archive ppb_156, Levy Economics Institute.

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