Does public spending crowd out private investment? Evidence from a panel of 14 OECD countries
Series: Working Papers. 9523.
Author: Isabel Argimón, José M. González-Páramo y José M.a Roldan Alegre.
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Abstract
This paper is concerned with the empirical relationship between government spending and private investment. A panel of 14 OECD countries is used. We present evidence which suggests the existence of a significant crowding-in effect of private investment by public investment, through the positive impact of infrastructure on private investment productivity. Moreover, government consumption appears to crowd out private investment. The implications of these results are of foremost importance when it comes to fiscal consolidation. Deficit reductions engineered through cuts in public investment could severely impinge upon private capital accumulation and growth prospects.