Budget Deficits, Public Spending and Interest Rates in Thailand
Some theory suggests that budget deficits and greater public spending will raise real interest rates and crowd-out private investment; other theory suggests there is no effect. We attempt to test this in the Thai economy between the years 1978 and 1994. We find that budget deficits did appear to raise real interest rates during our sample period. Our estimates also suggest that, holding the deficit constant, Thai government current and construction expenditure did not raise real interest rates and that Thai government equipment expenditure lowered them. We try to explain the last result with a framework similar to Barro's (1981) but expanded to include foreign trade and borrowing. Foreign borrowing alleviates the pressure on real interest rates to rise, and, under certain conditions, allows them to fall. We find support for this hypothesis from regression results that suggest that, during our sample period, Thai government equipment expenditure was heavily financed from abroad. The results imply that public investment programs in developing countries that do not boost budget deficits and obtain some foreign financing may not crowd-out private investment and could be a promising means of promoting capital formation.
|Date of creation:|
|Contact details of provider:|| Postal: 500 E. 9th Street, Claremont, CA 91711|
Phone: (909) 607-3041
Fax: (909) 621-8249
Web page: http://www.claremontmckenna.edu/rdschool/papers/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hall, Robert E, 1988.
"Intertemporal Substitution in Consumption,"
Journal of Political Economy,
University of Chicago Press, vol. 96(2), pages 339-357, April.
- Barro, Robert J., 1981.
"Output Effects of Government Purchases,"
3451294, Harvard University Department of Economics.
- Isabel Argimon & Jose Gonzalez-Paramo & Jose Roldan, 1997. "Evidence of public spending crowding-out from a panel of OECD countries," Applied Economics, Taylor & Francis Journals, vol. 29(8), pages 1001-1010.
- Nelson, C. & Startz, R., 1988.
"The Distribution Of The Instrumental Variables Estimator And Its T-Ratio When The Instrument Is A Poor One,"
Discussion Papers in Economics at the University of Washington
88-07, Department of Economics at the University of Washington.
- Nelson, Charles R & Startz, Richard, 1990. "The Distribution of the Instrumental Variables Estimator and Its t-Ratio When the Instrument Is a Poor One," The Journal of Business, University of Chicago Press, vol. 63(1), pages 125-140, January.
- Charles R. Nelson & Richard Startz, 1988. "The Distribution of the Instrumental Variables Estimator and Its t-RatioWhen the Instrument is a Poor One," NBER Technical Working Papers 0069, National Bureau of Economic Research, Inc.
- Nelson, C. & Startz, R., 1988. "The Distribution Of The Instrumental Variables Estimator And Its T-Ratio When The Instrument Is A Poor One," Working Papers 88-07, University of Washington, Department of Economics.
- Hall, Robert E., 1980.
"Labor supply and aggregate fluctuations,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 12(1), pages 7-33, January.
- King, R.G. & Baxter, M., 1990.
"Fiscal Policy In General Equilibrium,"
RCER Working Papers
244, University of Rochester - Center for Economic Research (RCER).
- Evans, Paul, 1987. "Interest Rates and Expected Future Budget Deficits in the United States," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 34-58, February.
- Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
When requesting a correction, please mention this item's handle: RePEc:clm:clmeco:1999-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.