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

See all articles by Davide Furceri

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Ricardo M. Sousa

University of Minho; Economic Policies Research Unit (NIPE); London School of Economics & Political Science (LSE) - Financial Markets Group; London School of Economics

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

Furceri, Davide and Sousa, Ricardo Magalhaes, The Impact of Government Spending on the Private Sector: Crowding-Out versus Crowding-In Effects (February 18, 2009). University of Minho, NIPE Working Paper No. 6/2009, Available at SSRN: https://ssrn.com/abstract=1346329 or http://dx.doi.org/10.2139/ssrn.1346329

Davide Furceri

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Ricardo Magalhaes Sousa (Contact Author)

University of Minho ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://econ.lse.ac.uk

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