Abstract

We examine the effects of disaggregated government expenditure on investment using fixed- and random-effect methods. Using the government budget constraint, we explore the effects of tax- and debt-financed expenditure for the full sample, and for sub-samples of developed and developing countries. In general, tax-financed government expenditure crowds out more investment than debt-financed expenditure. Expenditure on social security and welfare reduces investment in all samples while expenditure on transport and communication induces private investment in developing countries.

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