The Impact of Government Spending on the Private Sector: Crowding-Out versus Crowding-In Effects
University of Minho, NIPE Working Paper No. 6/2009
38 Pages Posted: 19 Feb 2009
Date Written: February 18, 2009
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 statistically significant, and robust to several econometric techniques.
Keywords: Fiscal Policy, Government Spending, Crowding-out, Crowding-in
JEL Classification: E0, E6
Suggested Citation: Suggested Citation
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