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

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  • Dalamagas, Basil A

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.

Suggested Citation

  • Dalamagas, Basil A, 1987. "Government Deficits, Crowding Out, and Inflation: Some International Evidence," Public Finance = Finances publiques, , vol. 42(1), pages 65-84.
    • Handle: RePEc:pfi:pubfin:v:42:y:1987:i:1:p:65-84
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    Cited by:

    1. Spector, Lee C, 1999. "Macroeconomic Models and the Determination of Crowding Out," Public Finance = Finances publiques, , vol. 54(1-2), pages 84-98.
    2. David Bowles & Holley Ulbrich & Myles Wallace, 1989. "Default Risk, Interest Differentials and Fiscal Policy: A New Look at Crowding Out," Eastern Economic Journal, Eastern Economic Association, vol. 15(3), pages 203-212, Jul-Sep.
    3. Ritu Rani & Naresh Kumar, 2016. "Does Fiscal Deficit Affect Interest Rate in India? An Empirical Investigation," Jindal Journal of Business Research, , vol. 5(2), pages 87-103, December.

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