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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]

Suggested Citation

  • D. Giannaros & B. Kolluri & M. Panik, 1999. "An Empirical Analysis of The Effects of Government Spending on Capital Investment: Evidence from O.E.C.D. Countries," International Economic Journal, Taylor & Francis Journals, vol. 13(1), pages 45-55.
    • Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:45-55
    DOI: 10.1080/10168739900000028
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    References listed on IDEAS

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    Cited by:

    1. Gianni Carvelli, 2023. "The long-run effects of government expenditure on private investments: a panel CS-ARDL approach," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(3), pages 620-645, September.
    2. 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.
    3. Ranjan Kumar Mohanty, 2016. "Does Fiscal Deficit Crowd Out Private Corporate Sector Investment In India?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1201-1224, November.
    4. Thanh Dinh Su & Canh Phuc Nguyen, 2021. "Twin balances, public governance and private investment: Quantile estimation for OECD countries," International Economics, CEPII research center, issue 165, pages 85-93.
    5. 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.
    6. Spector, Lee C, 1999. "Macroeconomic Models and the Determination of Crowding Out," Public Finance = Finances publiques, , vol. 54(1-2), pages 84-98.

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