Crowding Out: An Empirical Note

This study investigates whether there is empirical evidence that federal budget deficits in the U.S. actually lead to the crowding out of private investment in new plant and equipment. Several specifications are undertaken. Each of these estimations finds that private investment is apparently crowded out as a result of federal budget deficits. Also, it has been found here that this crowding-out phenomenon may have an important inflationary impact on the economy. This inflationary impact is presumably caused through a reduction in the rate at which productive capacity expands.