Impact of Local Government Monetary and Fiscal Policies on Output Growth of Firms
This study explores the impacts of the monetary and fiscal policies of local governments on the output growth of firms, using multilevel statistical models. It concludes that short-term loans and bonds have a positive influence on output growth but long-t
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Abstract This study explores the impacts of the monetary and fiscal policies of local governments on the output growth of firms, using multilevel statistical models. It concludes that short-term loans and bonds have a positive influence on output growth but long-term loans have a negative effect, while the effect of paidin-capital increases is inconclusive and insignificant. A credit guarantee from the local government has the largest impact on the elasticity values of factor inputs and financing amounts with respect to output, compared to other government expenditure programs. Keywords Monetary and fiscal policies • Multilevel statistical models • Bankbased and market-based financial systems • Local government • Financing options
1 Introduction South Korea has experienced two major financial crises in the last two decades. In the midst of these shocks, cash-strapped firms have been in an ongoing restructuring and debt readjustment processes through the Korean Asset Management Company’s Non-Performing Loan Disposal Fund and Structural Regulation Fund.1 Under the restructuring process, the central government has implemented actively monetary policies (e.g., the extension of the loan, timely supply of funds for corporates, and purchasing speculative-grade bonds for prompt liquidation) and
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In 1997, the Korean government established the Corporate Restructuring Committee and instituted corporate restructuring emergency funding. In 2008, the Coordinating Committee of Creditor Financial Institutions was launched to advance the restructuring process. C. Lee (*) Research Institute of Advanced Materials, Seoul National University, Seoul, Korea e-mail: [email protected] E. Kim Department of Agricultural Economics and Rural Development and Research Institute of Agricultural and Life Science, Seoul National University, Seoul, Korea e-mail: [email protected] © Springer Science+Business Media Singapore 2016 E. Kim, B.H.S. Kim (eds.), Quantitative Regional Economic and Environmental Analysis for Sustainability in Korea, New Frontiers in Regional Science: Asian Perspectives 25, DOI 10.1007/978-981-10-0300-4_6
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fiscal policies such as corporate tax integration and the introduction of a corporate cash flow tax. Besides, local governments have developed credit guarantee schemes of regional firms and have executed financing, taxation, and budgetary adjustments of early public finance expenditures, innovative activity assistance, and industrial policy regulations for entrepreneurial activities. However, it is not clear which financial and fiscal tools contribute most to a company’s business and output growth. The purpose of this study is to analyze the impact of monetary and fiscal policies of local governments on the output growth of firms. In this paper, we take into account four financing options for firms (a short-term loan, a long-term loan, a bond, and a paid-in-capital increase) and four monetary and fiscal policy options for the government to implement—a credit guarantee, a local tax revenue (o
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