Bilgili, Faik (2003): Dynamic implications of fiscal policy: Crowding-out or crowding-in?
Download (222Kb) | Preview
The purpose of this paper is to analyze the short run and long run effects of fiscal policy. The classical-Harrodian model developed in Moudud (2000, 1999), which is an extension of Shaikh (1995, 1992, 1991), provides a demonstration of dynamic fiscal policy context. It asserts that the there is a crowding in of output growth in the short run. In the long run, however, the impact of government spending is subject to change under some circumstances of capital utilization, normal profit rate and social savings rate. Blinder and Solow (1973), using IS-LM model, reveal that bond-financed fiscal expansion does not engender a complete crowding out. Friedman (1978, 1985) notices the possibility of crowding-in. Crowding-out or crowding-in debate can be extended to other economists. Blanchard and Perotti (1999) and Easterly and Rebelo (1993) reach crowding-in results. Bairam and Ward (1993) find crowding-out of private investment. Barro (1989, 1999) and Kormendi and Meguire (1985) obtain either a negative or no effect of government spending on the growth, whereas the works of Argimon et al. (1997), Devarajan et al. (1996) and Ahmed and Miller (2000) have mixed results. This study runs VECM models and impulse response analysis to juxtapose the crowding in/out effects of fiscal policy. Investigating the short run and long-run implications of fiscal policy for the Turkish economy, this paper concludes that government investments crowd out, whereas its current expenditures crowd in the private investment.
|Item Type:||MPRA Paper|
|Original Title:||Dynamic implications of fiscal policy: Crowding-out or crowding-in?|
|Keywords:||Fiscal policy, crowding-in, crowding-out, cointegration, VECM|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
|Depositing User:||Faik Bilgili|
|Date Deposited:||27. Jul 2010 14:55|
|Last Modified:||13. Feb 2013 11:03|
Ahmed, Habib and Stephen, M., Miller, 2000, “Crowding out and Crowding in Effects of the Components of Government Expenditure”, Contemporary Economic Policy, Vol. 18, No. 1, 124-33.
Aivazian V., J. L. Callen, I. Krinsky, and C. C. Y. Kwan, August 1990, "Risk Versus Return in the Substitutability of Debt and Equity Securities", Journal of Monetary Economics, 161-178.
Argimon, Isabel, Jose, M., Gonzalez-Paramo and Jose, M., Roldan, 1997, “Evidence of Public Spending Crowding out from a Panel of OECD Countries”, Applied Economics, Vol. 29, 1001-1010.
Bairam, Erkin and Bert, Ward, 1993, “The Externality Effect of Government Expenditure on Investment in OECD Countries”, Applied Economics, Vol. 25, 711-716.
Barro, Robert J., 1989, “Economic Growth in a Cross Section of Countries”, NBER Working Paper Series, No. 3120.
Barro, Robert J., 1990, “Government Spending in a Simple Model of Endogenous Growth”, Journal of Political Economy, Vol. 98, No. 5, pp.103-126.
Barry, Frank and Michael, B., Devereux, 2003, “Expansionary Fiscal Contraction: A Theoretical Exploration”, Journal of Macroeconomics, Vol. 25, 1-23.
Blanchard, Olivier and Roberto, Perotti, 1999, “An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output”, NBER Working Paper Series, No. 7269.
Blinder, Alan S., and Robert, M., Solow, 1973, “Does Fiscal Policy Matter?”, Journal of Public Economics, Vol. 2, No.4, 319-337.
Devarajan, S., Vinaya, Swaroop and Heng-fu, Zou, 1996, “The Composition of Public Expenditure and Economic Growth”, Journal of Monetary Economics, Vol. 37, 313-344.
Doan, Thoamas A., 1992, Rats User’s Manuel Version 4, Evanston IL, Estima.
Easterly, William and Sergio, Rebelo, 1993, “Fiscal Policy and Economic Growth”, Journal of Monetary Economics, Vol. 32, 417-458.
Enders, Walter, 1995, Applied Econometric Time Series, John Wiley Sons, Inc., Canada.
Ewing, Bradley T., 2003, “The Response of the Default Risk Premium to Macroeconomic Shock”, The Quarterly Review of Economics and Finance, Vol. 43, 261-272.
Friedman, Benjamin M., 1978, “Crowding out or Crowding in? The Economic Consequences of Financing Government Deficits”, NBER Working Paper Series, No. 284.
Friedman, Benjamin M., 1985, “Crowding out or Crowding in? Evidence on Debt-Equity Substitutability”, NBER Working Paper Series, No. 1565.
Granger, C., W., J., “Developments in the Study of Cointegrated Economic Variables”, (in) Lung-Run Economic Relationships, ed. by R., F., Engle and C., W., J., Granger, 1991, Oxford University Press., U.S..
Jorgensen, Clara, Hans, C., Kongsted and Anders, Rahbek, 1996, “Trend-Stationarity in the I(2) Cointegration Model”, Institute of Economics, University of Copenhagen, Vol. 26.
Kormendi, Roger C. and Philip, G., Meguire, 1985, “Macroeconomic Determinants of Growth: Cross-Country Evidence”, Journal of Monetary Economics, Vol. 16, 141-163.
Köse, Nezir ve Nuri, Uçar, 1999, “Durağan Vektör Otoregresif Süreçlerde Gecikme Uzunluğunu Belirleyen Kriterlerin Karşılaştırılması: Hata Terimleri Arasındaki Çapraz Korelasyon Derecesi ve Parametre Matrisi Özdeğerlerinin Sıfıra Yakınlığının Etkileri”, IV. Ulusal Ekonometri ve İstatistik Sempozyumu Bildirileri, Antalya, 619-632.
Miller, Stephen M. and Frank, S., Russek, 1997, “Fiscal Structures and Economic Growth: International Evidence”, Economic Inquiry, Vol. 35, No. 3, 603-613.
Moudud, Jamee K., 1999, “Government Spending in a Growing Economy”, The Jerome Levy Economics Institute, Working Paper, No. 52.
Moudud, Jamee K., 2000, “Crowding in or Crowding out? A Classical-Harrodian Perspective”, The Jerome Levy Economics Institute, Working Paper, No. 315.
Pesaran, M., H., and Shin, Y., 1998, “Generalized Impulse Response Analysis in Linear Multivariate Models”, Economic Letters, Vol. 58, 17-29.
Shaikh, Anwar M., 1992, “Wandering Around the Warranted Path: Dynamic Nonlinear Sdlutions to the Harrodian Knife-Edge”, New School for Social Research, http://homepage.newschool.edu/~AShaikh/papers.html, May 16, 2003.
Shaikh, Anwar M., 1995, “The Stock Market and the Corporate Sector: A Profit-Based Approach”, The Jerome Levy Economics Institute, Working Paper, No. xxx.