A note on the crowding-out of investment by public spending
AbstractOne of the most prominent and consistent findings of the recent empirical literature on fiscal policy is that investment expenditure is crowded-out by public spending in the short-run. In this contribution, we address this empirical fact using a dynamic general equilibrium model and show that the introduction of a habit-forming behavior plays a major role in accommodating the observed negative relationship between investment and government expenditure. Our numerical experiments point out the role of consumption inertia in determining the reactions of the open economy: as habit persistence gets stronger, a fiscal expansion crowds-out real consumption by a smaller amount and investment by a larger one, while the current account enters into a greater deficit.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Working Papers with number hal-00420132.
Date of creation: 28 Sep 2009
Date of revision:
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00420132/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Investment; Habit Formation; Current Account; Fiscal Expansion;
Other versions of this item:
- Cardi, Olivier, 2010. "A Note On The Crowding-Out Of Investment By Public Spending," Macroeconomic Dynamics, Cambridge University Press, vol. 14(04), pages 604-615, September.
- NEP-ALL-2009-10-10 (All new papers)
- NEP-DGE-2009-10-10 (Dynamic General Equilibrium)
- NEP-OPM-2009-10-10 (Open Economy Macroeconomic)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.