Government Deficits, Crowding Out, and Inflation: Some International Evidence

Basil A Dalamagas

Public Finance = Finances publiques, 1987, vol. 42, issue 1, 65-84

Abstract: An empirical investigation of debt-financed government expenditure in nine industrialized OECD countries is presented. The focus is on whether borrowing-financed increases in government spending are associated with price level increases or private investment displacements. Contrary to most empirical work to date, the results are consistent with the neo-Keynesian position of "crowding-in" effects. In addition, the results indicate that bond-financed deficits have deflationary, rather than inflationary impacts. This finding is at odds with the popular opinion that coincidence of expansionary fiscal measures in the 1970s contributed to the world commodity price boom and world inflation.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:42:y:1987:i:1:p:65-84

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