The Effects of Government Spending on Private Capital Formation: The Case of Malaysia

Mansor Ibrahim

Economia Internazionale / International Economics, 2001, vol. 54, issue 2, 187-201

Abstract: The analysis attempts to identify components of federal government expenditures that are substitutes and complements to private investments. It also investigates the financing issue of public expenditures, whether the spending increase should be financed by taxes or by debts. Our results suggest a robust and negative relationship between government current expenditures and private investments. Meanwhile, development expenditures are positively related to private investments. Moreover, when we disaggregate public expenditures into their various components, we document only a strong negative relationship between the expenditures on transfer payments, public debt charges and pensions and the private investment rate. Lastly, we uncover evidence that debt-financed expenditures are superior to tax-financed expenditures.

JEL-codes: E22 E62 (search for similar items in EconPapers)
Date: 2001
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