Public Debt and Entrepreneur Investment

Last registered on March 26, 2025

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Pre-Trial

Trial Information

General Information

Title

Public Debt and Entrepreneur Investment

RCT ID

AEARCTR-0015646

Initial registration date

March 26, 2025

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

March 26, 2025, 10:05 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Name

Mikael Paaso

Affiliation

Erasmus University

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Other Primary Investigator(s)

PI Name

Sami Torstila

PI Affiliation

Aalto University

Contact Investigator

PI Name

Deniz Okat

PI Affiliation

Hong Kong University of Science and Technology

Contact Investigator

PI Name

Magnus Blomkvist

PI Affiliation

EDHEC

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Additional Trial Information

Status

In development

Start date

2025-03-31

End date

2027-01-01

Keywords

Finance & Microfinance

Additional Keywords

JEL code(s)

H63 Sovereign Debt, G40 Behavioral Finance

Secondary IDs

Prior work

This trial is based on or builds upon one or more prior RCTs.

Abstract

We study whether entrepreneurs reduce their planned investment in response to higher levels of public debt. Ricardian equivalence (Barro, 1974) implies that entrepreneurs should anticipate higher future taxes when public debt is higher and reduce investment, but
entrepreneurs may be inattentive to the level of debt, myopic about the future or anticipate that they will not be the ones paying those taxes. We conduct two survey experiments, with results linked to administrative financial data, to test whether entrepreneurs report a lower willingness to invest when presented with exogenous shocks to the level of public debt.

We will conduct a survey of about 1000 Finnish SMEs (most Finnish firms are required to prepare public financial statements). We first test if firms that report being more concerned about public debt invest less in years during which public debt is more salient (as measured by mentions in parliamentary speeches). We then conduct two survey experiments: The first is a conjoint analysis, in which entrepreneurs are presented with 2 randomized “states of the future economy” in which attributes such as previous year GDP growth, inflation, government composition and government-debt-to-GDP are varied. We ask participants under which state they are more likely to invest. We
then conduct an information provision experiment in which all participants are presented with a forecast of public debt, but the nature of this forecast (optimistic vs. pessimistic) is randomized. We ask participants whether this forecast changes their investment plans and expectations about economic growth.

We also anticipate replicating our experiment with self-identified entrepreneurs on Prolific.

External Link(s)

Registration Citation

Citation

Blomkvist, Magnus et al. 2025. "Public Debt and Entrepreneur Investment." AEA RCT Registry. March 26. https://doi.org/10.1257/rct.15646-1.0

Sponsors & Partners

Experimental Details

Interventions

Intervention(s)

Intervention Start Date

2025-03-31

Intervention End Date

2025-05-01

Primary Outcomes

Primary Outcomes (end points)

Conjoint experiment: Which "future state of the economy" do participants consider more favorable for investment?
Information provision experiment: Likelihood of investing after forecast (or change in likelihood to invest)

Primary Outcomes (explanation)

The likelihood to invest is measured on a 1-5 scale (the question is "Compared to the current year, do you expect to invest more in 2030 than this year?" with options ranging from a "A lot less" to "A lot more").

Secondary Outcomes

Secondary Outcomes (end points)

Information provision experiment: Change in perceived economic conditions

Secondary Outcomes (explanation)

The variable is measured in egotropic (for the firm) and sociotropic (for the economy more broadly) terms with two separate questions

Experimental Design

We will run two separate experiments within the project:

First, we will run a conjoint analysis. In this experiment, participants are presented with five scenarios in which they are presented with two possible states of the economy in 2027. These are presented as a table, with a row for prev. year GDP growth, GDP/capita, prev. year inflation, the interest rate, corporate tax rate, personal income tax rate (highest rate) as well as public debt/GDP. All of the parameters are randomized from a set of realistic options. We then ask participants which future state of the economy is more conducive to investment in their business.

Second, we will run an information provision experiment. Participants are presented with either a high or a low forecast of public debt to GDP in the future (all participants receive a forecast, i.e. there is an active control). Before this, we elicit their current expectations of public debt in 2030. We then test ask for their posterior estimate of public debt to GDP (after the forecast) as well as their investment plans (Likert scale of invest less or more compared to today) and perceptions of economic conditions. We plan to analyse this in two ways: First, by simply comparing expectations and investment plans for those who received the high vs the low forecast, and second by testing
whether expectations and investment plans change in the same direction as the public debt forecast (i.e. if posterior – prior is positive, we expect investment to decline).

Experimental Design Details

Not available

Randomization Method

Software (randomization done by the survey company we are using)

Randomization Unit

Individual entrepreneur

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

Aiming for 1000 individuals

Sample size: planned number of observations

1000

Sample size (or number of clusters) by treatment arms

Information provision experiment: 500 per forecast

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB

Institutional Review Boards (IRBs)

IRB Name

Rotterdam School of Management IRB-E

IRB Approval Date

2024-09-13

IRB Approval Number

ETH2425-0100

IRB Name

EDHEC Research Ethics Committee

IRB Approval Date

2024-09-19

IRB Approval Number

N/A

Analysis Plan