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New estimates of direct crowding out (or in) of investment and of a peace dividend for the U.S. economy

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  • Paul Blackley

Abstract

This article provides new evidence concerning the effect on private investment of allocating resources to public consumption and investment. An autoregressive distributed lag model developed for cointegration-error correction analysis is estimated using data for the U.S. public sector for 1956Q1-2010Q2. The most important finding is that in the long run, there is no crowding out associated with the net effect of equal percentage changes in government purchases of domestic consumption and investment. Contrary to some previous results, public investment has a significant crowding in effect on private investment while military purchases have a significant crowding out effect, with an elasticity of -0.52. The evidence also indicates that there is an important investment role for profit growth, but not for the real interest rate in the long run. The results are generally consistent with post Keynesian views of fiscal policy and support those who argue that the 2009 stimulus package was not well-suited for generating a sustained recovery in the U.S. economy.

Suggested Citation

  • Paul Blackley, 2014. "New estimates of direct crowding out (or in) of investment and of a peace dividend for the U.S. economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 37(1), pages 67-90.
    • Handle: RePEc:mes:postke:v:37:y:2014:i:1:p:67-90
    DOI: 10.2753/PKE0160-3477370106
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    Cited by:

    1. Katarzyna Kopczewska, 2016. "Efficiency of Regional Public Investment: An NPV-Based Spatial Econometric Approach," Spatial Economic Analysis, Taylor & Francis Journals, vol. 11(4), pages 413-431, October.
    2. Amir Kia, 2020. "Impact of Public Debt, Deficit and Debt Financing on Private Investment in a Large Country: Evidence from the United States," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 6(2), pages 139-161, December.
    3. Ouédraogo, Rasmané & Sawadogo, Relwendé & Sawadogo, Hamidou, 2020. "Private and public investment in sub-Saharan Africa: The role of instability risks," Economic Systems, Elsevier, vol. 44(2).
    4. Russell E. Triplett & Nilufer Ozdemir & Paul M. Mason, 2022. "Structural Change in the Investment Function," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(1), pages 220-236, January.

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