AN EMPIRICAL ANALYSIS OF THE EFFECTS OF GOVERNMENT SPENDING ON CAPITAL INVESTMENT: EVIDENCE FROM O.E.C.D. COUNTRIES

Demetrios S. Giannaros, Bharat R. Kolluri and M. Panik

International Economic Journal, 1999, vol. 13, issue 1, pages 45-55

Abstract: This paper focuses on the possible "direct” effect of increased government size on fixed capital formation. That is, we hypothesize that as government increases its consumption as a percentage of GAP, investors modify their investment plans accordingly. It is our contention that the direct effects of government size on fixed capital investment manifest themselves through a downward shift in the investment schedule. To test this hypothesis, we estimate an aggregate investment function for eighteen O.E.C.D. countries for the period 1960--1994. Our findings suggest a negative relationship between government size and fixed capital investment. [E22, E62]

Date: 1999
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