EVIDENCE OF PUBLIC SPENDING CROWDING-OUT FROM A PANEL OF OECD COUNTRIES

The empirical relationship between government spending and private inv estment is examined, using a panel of 14 OECD co countries The evidenc e suggests the existence of a significant crowding-in effect of privat e investment by public investment, through the positive impact of infr astructure on private investment productivity. Moreover, government co nsumption appears to crowd out private investment. The implications of these results are of foremost importance when it comes to fiscal cons olidation. Deficit reductions engineered through cuts in public invest ment could severely impinge on private capital accumulation and growth prospects.