Crowding‐out and crowding‐in effects of the components of government expenditure

This article examines the effects of disaggregated government expenditure on investment using fixed‐ and random‐effect methods. Using the government budget constraint, the analysis explores the effects of tax‐ and debt‐financed expenditure for the full sample, and for subsamples of developed and developing countries. In general, tax‐financed government expenditure crowds out more investment than debt‐financed expenditure. Expenditure on social security and welfare reduces investment in all samples while expenditure on transport and communication induces private investment in developing countries.