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Investment effects of departures from governmental present-value budget balance

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  • Erick Elder

Abstract

The paper investigates whether departures from government borrowing constraints affect the relationship between fiscal-policy innovations and changes in the investment level. 'Break points', or apparent departures from present-value budget balance, are then identified. Next, the investment-deficit relationship is examined prior to and following identified break points in an effort to detect potential changes in behaviour. The investment-deficit relationship is quantified by examining posterior coverage bounds of impulse response functions. Britain appears to undergo such a break around 1973. Data from this country suggest that significantly more crowding out occurred following the identified breaks: in contrast, data from other comparison countries that do not appear to have experienced breaks indicate stable investment-deficit relationships.

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  • Erick Elder, 1999. "Investment effects of departures from governmental present-value budget balance," Applied Economics, Taylor & Francis Journals, vol. 31(10), pages 1239-1247.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:10:p:1239-1247
    DOI: 10.1080/000368499323454
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