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The Impact of Government Spending on the Private Sector: Crowding-out versus Crowding-in Effects"

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Abstract

The aim of this paper is to analyze the impact of government spending on the private sector, assessing the existence of crowding-out versus crowding-in effects. Using a panel of 145 countries from 1960 to 2007, the results suggest that government spending produces important crowding-out effects, by negatively affecting both private consumption and investment. Moreover, while the effects do not seem to depend on the different phases of economic cycle, they vary considerably among regions. The results are economically and statiscally significant, and robust to several econometic techniques.

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  • Davide Furceri & Ricardo M. Sousa, 2009. "The Impact of Government Spending on the Private Sector: Crowding-out versus Crowding-in Effects"," NIPE Working Papers 6/2009, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:6/2009
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    Cited by:

    1. Fabian Gunzinger & Jan-Egbert Sturm, 2016. "It's Politics, Stupid! Political Constraints Determined Governments' Reactions to the Great Recession," Kyklos, Wiley Blackwell, vol. 69(4), pages 584-603, November.
    2. Davide Furceri & Aleksandra Zdzienicka, 2012. "The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 33(1), pages 129-152, March.
    3. Okey Mawussé Komlagan Nézan, 2016. "Public Expenditure and Private Sector Investment in WAEMU Countries," Working Papers 328, African Economic Research Consortium, Research Department.
    4. Lena Malešević-Perović, 2016. "Government Debt-Interest Rate Nexus in G7 Countries over a Long Horizon," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(5), pages 603-625, December.
    5. OSENI Isiaq Olasunkanmi, 2015. "Fiscal Policy Shocks and Private Consumption in Nigeria: Blanchard-Perotti (2002) Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 7(6), pages 42-60.
    6. Luca Agnello & Davide Furceri & Ricardo M. Sousa, 2011. "Fiscal Policy Discretion, Private Spending, and Crisis Episodes," NIPE Working Papers 31/2011, NIPE - Universidade do Minho.
    7. Sesay Brima & Abdulai Salia Brima, 2017. "Monetary Policy Effects on Private Sector Investment: Evidence from Sierra Leone," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 476-488.
    8. Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2013. "How best to measure discretionary fiscal policy? Assessing its impact on private spending," Economic Modelling, Elsevier, vol. 34(C), pages 15-24.
    9. Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2014. "Monetary and fiscal policy interactions: Evidence from emerging European economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 1079-1091.
    10. Deepankar Basu, 2009. "The Paradox of Thrift and Crowding-In of Private Investment in a Simple IS-LM Model," UMASS Amherst Economics Working Papers 2009-14, University of Massachusetts Amherst, Department of Economics.
    11. Tuomas A. Peltonen & Ricardo M. Sousa & Isabel S. Vansteenkiste, 2009. "Asset prices, Credit and Investment in Emerging Markets," NIPE Working Papers 18/2009, NIPE - Universidade do Minho.
    12. Luca Agnello & Davide Furceri & Ricardo Sousa, 2013. "Discretionary Government Consumption, Private Domestic Demand, and Crisis Episodes," Open Economies Review, Springer, vol. 24(1), pages 79-100, February.
    13. Enock Mwakalila, 2020. "Crowding Out of Private Sector in Tanzania: Government Expenditure, Domestic Borrowing, and Lending Rates," Emerging Economy Studies, International Management Institute, vol. 6(1), pages 123-135, May.
    14. Tomomi Miyazaki, 2018. "Interactions between regional public and private investment: evidence from Japanese prefectures," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(1), pages 195-211, January.
    15. John J. HEIM, 2012. "The Different Crowd Out Effects Of Tax Cut And Spending Deficits," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(2).
    16. Yasemin Özerkek & Sadullah Çelik, 2010. "The Link between Government Spending, Consumer Confidence and Consumption Expenditures in Emerging Market Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 471-485, December.
    17. João Sousa Andrade & António Portugal Duarte, 2016. "Crowding-in and crowding-out effects of public investments in the Portuguese economy," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 488-506, July.
    18. Hüseyin Şen & Ayşe Kaya, 2014. "Crowding-Out or Crowding-In? Analyzing the Effects of Government Spending on Private Investment in Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(6), pages 617-630, December.
    19. Xu, Kun & Xu, Wenli, 2015. "中国政府消费支出对经济波动的传导机理分析 [Study on Influential Mechanism Between Government Expenditure of Consumption and Economic Fluctuation]," MPRA Paper 70994, University Library of Munich, Germany, revised Dec 2015.
    20. Ramesh Chandra Das & Amaresh Das & Kamal Ray, 2018. "Examining Forward and Backward Linkages between Public and Private Investments," Review of Market Integration, India Development Foundation, vol. 10(1), pages 45-75, April.
    21. Davide Furceri & Annabelle Mourougane, 2010. "The Effects of Fiscal Policy on Output: A DSGE Analysis," OECD Economics Department Working Papers 770, OECD Publishing.

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    More about this item

    Keywords

    Fiscal Policy; Government Spending; Crowding-out; Crowding-in.;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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