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Is government consumption really crowding out investment? Evidence from the EU28

Author

Listed:
  • Juan Carlos Cuestas

    (Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Mercedes Monfort

    (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Javier Ordóñez

    (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain)

Abstract

In this paper we contribute to the literature on the crowding out effect that government consumption has had on investment in the EU28 over the past 25 years. Our results show that after the crisis, government consumption shocks have affected output, while this did not happen before the crisis. For the CEECs, the effect of positive government consumption shocks has been negative for investment, while in the EU15+2 there has been no crowding out effect and output has reacted significantly and positively to government consumption shocks.

Suggested Citation

  • Juan Carlos Cuestas & Mercedes Monfort & Javier Ordóñez, 2020. "Is government consumption really crowding out investment? Evidence from the EU28," Working Papers 2020/05, Economics Department, Universitat Jaume I, Castellón (Spain).
    • Handle: RePEc:jau:wpaper:2020/05
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    References listed on IDEAS

    as
    1. Juan Carlos Cuestas & Javier Ordóñez, 2018. "Fiscal consolidation in Europe: has it worked?," Applied Economics Letters, Taylor & Francis Journals, vol. 25(16), pages 1179-1182, September.
    2. Cuestas, Juan Carlos & Gil-Alana, Luis A. & Staehr, Karsten, 2014. "Government debt dynamics and the global financial crisis: Has anything changed in the EA12?," Economics Letters, Elsevier, vol. 124(1), pages 64-66.
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    4. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    6. Cuestas Juan Carlos & Gil-Alana Luis Alberiko, 2016. "Testing for long memory in the presence of non-linear deterministic trends with Chebyshev polynomials," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(1), pages 57-74, February.
    7. Michael Woodford, 2011. "Simple Analytics of the Government Expenditure Multiplier," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 1-35, January.
    8. Barry, Frank, 1999. "Government Consumption and Private Investment in Closed and Open Economies," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 93-106, January.
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    Cited by:

    1. Park, Joshua K. & Meng, Xiangcai, 2024. "Crowding out or crowding in? Reevaluating the effect of government spending on private economic activities," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 102-117.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F15 - International Economics - - Trade - - - Economic Integration

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