Crowding Out: An Empirical Note

Cebula, Richard (1977): Crowding Out: An Empirical Note. Published in: The Quarterly Review of Economics & Business , Vol. 18, No. 3 (15 November 1978): pp. 119-123.

Abstract

This study investigates whether there is empirical evidence that federal budget deficits in the U.S. actually lead to the crowding out of private investment in new plant and equipment. Several specifications are undertaken. Each of these estimations finds that private investment is apparently crowded out as a result of federal budget deficits. Also, it has been found here that this crowding-out phenomenon may have an important inflationary impact on the economy. This inflationary impact is presumably caused through a reduction in the rate at which productive capacity expands.

• Item Type: MPRA Paper
• Language: English
• Keywords: budget deficits; crowding out; investment in new plant and equipment; inflation
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus

References

K.M. Carlson and R.W. Spencer, "Crowding Out and Its Critics," Federal Reserve Bank of St. Louis Review (December, 1975), pp. 2-17.

P.A. David and J.L. Scadding, "Private Savings: Ultra-rationality, Aggregation, and Denison's Law," Journal of Political Economy (March/April, 1974), pp. 225-49.

M.K. Evans, Macroeconomic Activity: Theory, Forecasting, and Control (New York: Harper, 1969).

G. Fromm and L.R. Klein, "A Comparison of Eleven Econometric Models of the United States," American Economic Review (May, 1973), pp. 385-93.

J.M. Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt and Brace, 1936).