Evidence of public spending crowding-out from a panel of OECD countries

Argimón, Isabel; González-Páramo, José Manuel; Roldán, José M.

doi:10.1080/000368497326390

Cited by 75 publications

(51 citation statements)

References 18 publications

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“…Miller and Russek (1997) differ from prior studies in that they separate the effects of government expenditure based on the method of financing-tax or debt financing. Argimon et al (1997) separates private from public investment. Using annual data for fourteen OECD countries for the period 1978 to 1989, they consider the effects, if any, of public consumption and public investment on private investment.…”

Section: Deficits Crowding-out and Crowding In Effects Of Public Expmentioning

confidence: 99%

The Budget Deficit and Economic Performance: A Survey

Saleh

Harvie

2005

Singapore Econ. Rev.

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The relationship between budget deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries. However, the purpose of this paper is to examine the extensive literature to such a relationship, concentrating on theoretical debates, empirical studies, and econometric models in order to derive substantive conclusions, which can be beneficial in terms of macroeconomics area or in terms of constructing or developing a macroeconomic model for analysing the impact of budget deficits on macroeconomic variables. The majority of these studies regress a macroeconomic variable on the deficit variable. These studies are cross-country and utilise time series data. In general the key outcomes from the studies presented in this paper indicated that both the method of financing and the components of government expenditures could have different effects. Therefore, it is crucial to distinguish between current and capital expenditure when evaluating the impact of fiscal policy on private investment and output growth. Even though, the overall results from the empirical literature with respect to the impact of public investment on private investment and growth are ambiguous, the bulk of the empirical studies finds a significantly negative effect of public consumption expenditure on growth, while the effects of public investment expenditure are found to be positive although less robust. The key outcome from all of the studies presented in this paper which investigating the relationship between the budget deficit and current account deficit showed strong evidence in both developed and developing countries towards supporting the Keynesian proposition (conventional view) which suggests that an increase in the budget deficit would induce domestic absorption and, hence import expansion, causing a current account deficit. Furthermore, it can also be concluded from the empirical findings that the effects of budget deficits on exchange rates depends on the way of funding the deficits, whether through taxation or through money growth. The key findings from the empirical studies investigating the relationship between the budget deficit and interest rates indicated strong evidence towards supporting the Keynesian model of a significant and positive relationship between budget deficits and interest rates. The major outcomes from the empirical studies examining the relationship between budget deficits and inflation showed strong evidence that the budget deficit financed through monetisation and a rising money supply could lead to inflation. * I would like to thank A/P Charles Harvie and A/P Edgar J Wilson for their helpful comments and suggestions.

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Section: Deficits Crowding-out and Crowding In Effects Of Public Expmentioning

confidence: 99%

The Budget Deficit and Economic Performance: A Survey

Saleh

Harvie

2005

Singapore Econ. Rev.

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“…The impact of _________________________ 10 For example, Voss (2002) confirmed the effect of public investment crowding out private investment in the US and Canadian economies. In turn, Argimon et al (1997), as well as Lopez (2001), point to the opposite effect (the so-called crowding-in) in the case of public infrastructural investment in 14 developed OECD countries and in Spain, respectively. In the context of panel models of investment, Pindyck and Solimano (1993) demonstrated that the size of public investment has a negative and significant impact on private investment both in developed OECD countries and in the developing ones.…”

Section: _________________________mentioning

confidence: 99%

Does Inflation Harm Corporate Investment? Empirical Evidence from OECD Countries

Ciżkowicz

Rzońca

2013

Economics

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Theoretical models point at various channels of the impact of inflation on corporate investment. This article attempts to answer the question what the direction and strength of this possible impact is, examining the relationship between corporate investment and inflation on the sample of 21 OECD countries in the years 1960-2005. The obtained negative relationship, statistically and economically significant, proves robust to changes in the specification of the estimated equation, estimators, frequency of variables used in the study and analysed period. Moreover, the obtained results suggest a nonlinear character of this relationship: the marginal effect on corporate investment is higher at inflation rates between 3 and 5.5 per cent. These results suggest that the impact of inflation on corporate investment dynamics may be the source of the nonlinear nature of the relationship between GDP growth and inflation identified in previous empirical studies. Finally, taking into account the direct impact of inflation on investment, variables approximating the cost of capital utilisation prove to be statistically insignificant determinants of corporate investment. JEL E22 C23 D22 D81 E31 F44

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“…Poor infrastructure, by increasing operating costs, is seen as a burden for firms' operations and performance, thus affecting their competitiveness. As a complementary factor to other production inputs, infrastructure stimulates in addition private productivity by raising investment in new and more productive equipment (Blejer and Kahn, 1984 ;Aschauer, 1989 ;Murphy et al, 1989 ;Barro, 1990 ;Argimon et al, 1997). Infrastructure is also at the origin of externalities across firms, industries, and regions 13 .…”

Section: Infrastructure Quality and Use Of Ictmentioning

confidence: 99%