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Working Paper
Credit Guarantee and Fiscal Costs
This paper studies the effectiveness of government-backed credit guarantees to the infrastructure sector, a policy tool adopted by a range of countries during recessions. We proposea two-sector model with financial intermediary frictions so that infrastructure producers relyon bank loans to finance their risky production. Governments can intervene in the credit market by providing a partial guarantee on those bank loans. We find that a credit guaranteeincreases infrastructure production, leading to a high fiscal multiplier in the longer run. In thenear term, however, higher wages in the ...