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The main negative effect of fiscal deficits: A crowding-out of investment, leading to a fall in potential growth
If a high fiscal deficit does not lead to a fall in investment, and therefore to a fall in potential growth, which also may trigger a public debt sustainability crisis, there is much less reason to correct a high fiscal deficit. We look at the examples of the United States, the United Kingdom, Germany, France, Spain, Italy and Japan. There is a link between the fiscal deficit and a fall in total private investment in the United States, the United Kingdom, Spain and Japan, and a fall in corporate investment in the United Kingdom and Spain. If we focus solely on its effects on corporate investment, the fiscal deficit is therefore apparently excessive only in the United Kingdom and Spain .
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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