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

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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.

Suggested Citation

  • Ibrahim , Mansor H., 2001. "The Effects of Government Spending on Private Capital Formation: The Case of Malaysia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 54(2), pages 187-201.
    • Handle: RePEc:ris:ecoint:0217
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    Cited by:

    1. Agenor, Pierre-Richard & Nabli, Mustapha K. & Yousef, Tarik M., 2005. "Public infrastructure and private investment in the Middle East and North Africa," Policy Research Working Paper Series 3661, The World Bank.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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