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Spatial crowding-out and crowding-in effects of government spending on the private sector in Japan

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  • Funashima, Yoshito
  • Ohtsuka, Yoshihiro

Abstract

Motivated by cross-jurisdictional private activities, this study proposes a fiscal spillover channel to investigate the spatial crowding-out and crowding-in effects of government spending on the private sector in Japan. We demonstrate that there are spatial autocorrelations in private economic variables, intensifying the crowding-out effects of government consumption. On the contrary, when such spatial spillovers are controlled for, the crowding-out effects of public investment are shown to be negligible. Furthermore, our subsample analysis reveals some noticeable regional differences between urban and rural areas, such as the partial crowding-in effects of government consumption on private consumption for Kanto (the Tokyo metropolitan area) and those of public investment on private consumption for Shikoku (a rural island). Our findings imply that policymakers should take into account spatial spillovers and regional differences to rejuvenate the regional economy by stimulating private demand.

Suggested Citation

  • Funashima, Yoshito & Ohtsuka, Yoshihiro, 2019. "Spatial crowding-out and crowding-in effects of government spending on the private sector in Japan," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 35-48.
    • Handle: RePEc:eee:regeco:v:75:y:2019:i:c:p:35-48
    DOI: 10.1016/j.regsciurbeco.2019.01.008
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    2. Bessho, Shun-ichiro, 2021. "Local fiscal multipliers and population aging in Japan," Japan and the World Economy, Elsevier, vol. 60(C).
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    5. Tomomi Miyazaki & Haruo Kondoh, 2022. "Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan," Discussion Papers 2206, Graduate School of Economics, Kobe University.
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    More about this item

    Keywords

    Spatial spillover; Government spending; Crowding-out effect; Crowding-in effect;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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