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An Empirical Analysis of The Effects of Government Spending on Capital Investment: Evidence from O.E.C.D. Countries

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  • D. Giannaros
  • B. Kolluri
  • M. Panik

Abstract

This paper focuses on the possible “direct” effect in increased government size on fixed capital formation. That is, we hypothesize that as government increases its consumption as percentage of GDP, investors modify their investment plans accordingly. It is our contention that the direct effect of government size on fixed capital investment manifest themselves through a downward shift in the investment schedule. To test this hypothesis, we estimate an aggregate investment function for eighteen O.E.C.D. countries for the period 1960-1994. Our findings suggest a negative relationship between government size and fixed capital investment. [ E22, E62]

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 13 (1999)
Issue (Month): 1 ()
Pages: 45-55

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Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:45-55

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  1. Leonall C. Andersen & Jerry L. Jordon, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 11-23.
  2. Kolluri, Bharat R. & Giannaros, Demetrios S., 1987. "Budget deficits and short-term real interest rate forecasting," Journal of Macroeconomics, Elsevier, vol. 9(1), pages 109-109.
  3. Michael W. Keran, 1970. "Monetary and fiscal influences on economic activity : the foreign experience," Review, Federal Reserve Bank of St. Louis, issue Feb, pages 16-28.
  4. Martin Feldstein, 1982. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc.
  5. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-57, December.
  6. Jorgenson, Dale W, 1971. "Econometric Studies of Investment Behavior: A Survey," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1111-47, December.
  7. Barth, James R & Russek, Frank S & Wang, George H K, 1986. "A Time Series Analysis of the Relationship between the Capital Stock and Federal Debt: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 527-38, November.
  8. Modigliani, Franco & Sterling, Arlie, 1986. "Government Debt, Government Spending and Private Sector Behavior: Comment," American Economic Review, American Economic Association, vol. 76(5), pages 1168-79, December.
  9. Robert J. Barro, 1980. "Output Effects of Government Purchases," NBER Working Papers 0432, National Bureau of Economic Research, Inc.
  10. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
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Citations

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Cited by:
  1. Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, vol. 27(3), pages 507-519, September.
  2. Lee C. Spector, 2005. "Macroeconomic Models and the Determination of Crowding Out," Working Papers 200511, Ball State University, Department of Economics, revised Mar 2006.
  3. T.K. Jayaraman & Chee-Keong Choong, 2006. "Public Debt And Economic Growth In The South Pacific Islands: A Case Study Of Fiji," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 31(2), pages 107-121, December.

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