Crowding-Out or Crowding-In? Analyzing the Effects of Government Spending on Private Investment in Turkey

Abstract

The main objective of this paper is to analyze empirically the effects of government spending on private investment, evaluating the existence of crowding-out/-in effects, in Turkey for the 1975-2011 period. In contrast to previous studies, we employed in the paper the modified version of David A. Aschauer’s (1989) model, which allows us to see the effects of each component of government spending taking place in the Turkish budget system. The empirical findings of the paper showed that government current transfer spending, government current spending, and government interest spending crowd-out private investment, whereas government capital spending crowds-in private investment in Turkey.

Key words: Government spending, Crowding-out, Crowding-in, Private investment, Fiscal policy, Turkey.
JEL: E62, H54, H72, R42.