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Spatial crowding-out and crowding-in effects of government spending on the private sector in Japan

Yoshito Funashima and Yoshihiro Ohtsuka

Regional Science and Urban Economics, 2019, vol. 75, issue C, 35-48

Abstract: Motivated by cross-jurisdictional private activities, this study proposes a fiscal spillover channel to investigate the spatial crowding-out and crowding-in effects of government spending on the private sector in Japan. We demonstrate that there are spatial autocorrelations in private economic variables, intensifying the crowding-out effects of government consumption. On the contrary, when such spatial spillovers are controlled for, the crowding-out effects of public investment are shown to be negligible. Furthermore, our subsample analysis reveals some noticeable regional differences between urban and rural areas, such as the partial crowding-in effects of government consumption on private consumption for Kanto (the Tokyo metropolitan area) and those of public investment on private consumption for Shikoku (a rural island). Our findings imply that policymakers should take into account spatial spillovers and regional differences to rejuvenate the regional economy by stimulating private demand.

Keywords: Spatial spillover; Government spending; Crowding-out effect; Crowding-in effect (search for similar items in EconPapers)
JEL-codes: E62 H30 R10 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:regeco:v:75:y:2019:i:c:p:35-48