This paper econometrically examines whether government deficits financed by borrowing reduce credit availability, thereby "crowding out" business and consumer spending. Deficit variables are added to consumption and investment models and tested to see if they negatively impact private spending, are statistically significant, and increase explained variance. U.S. data for 1960-2000 is used. A demand-driven econometric model, patterned after the work of Klein and Fair and containing eight behavioral equations is used to estimate effects. This study finds strong statistical evidence, even from within traditional Keynesian models, deficits crowd out private consumption and investment.
John J. Heim. "How much does 'Crowd Out' Reduce the Effects of Keynesian Stimulus?." Proceedings of the New York State Economics Association. vol. 3, September 2010, p. 58-65
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