Fiscal policy, profits and investment: Some additional evidence

Applied Economics Letters (Impact Factor: 0.23). 10/2008; 15(13):1047-1051. DOI: 10.1080/13504850600993515
Source: RePEc


This article provides time series evidence on the effects of fiscal policy on profits and investment in the US. In addition to neoclassical models of investment and profits we also consider Keynesian models. Our findings provide some support for the neoclassical views. However, Keynesian explanations, which allow for the effects of the real interest rate, receive strong support from the data.

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    • "Private investment decisions are mainly dependent on the economic conditions in developing countries; and government spending provides necessary incentives to attract private funds. Ref. [14] concluded that government expenditure crowds in private investment, but emphasized the strong negative effect of real interest rate on private investment. Crowding in effect of private investment was found by [15], however, it was noted that budget deficit crowds out private investment. "

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    ABSTRACT: Government's role in promoting the country's economy remains a relevant issue both in academics and politicians debates. Not only for individual countries but also for the European Union as a whole the promotion of high value-added activities, in particular in lower development small open economies which hardly recover from external economic shocks and experience significant social problems due to high unemployment level remains a relevant issue. The country's competitiveness and level of development, as well as the country's economy growth, depend on high value-added investment growth, and both private and public investments play a significant role in economy of each country. Government's role, in particular through the fiscal policy, in the promotion of these activities is crucial. The prevailing view in the scientific literature is that in developed countries public investment crowds out private investment, while in developing – crowds in, but it is not clear under what conditions these effects occur because the countries are very different. Also the effect of the taxes revenues and the government expenditure indicators on private investment is unclear because the effect of these variables on private investment has not been studied comprehensively. So the aim of the research is to evaluate the relationship between fiscal policy indicators, such as the government revenues from taxes and the government expenditure, and private investment comprehensively including indicators of macroeconomic environment in the Baltic States, by applying correlation and regression analysis.
    Preview · Article · Jun 2012