Tito's Blog

Crowding In and Crowding Out

I heard often about increased government spending leading to “crowding out”, or private sector losing its battle against public sector in the competition to borrow money from savers. There’s also a counter-acting force of “crowding in”, where private investment is fostered by a government deficit-induced growth in demand.

The actual situation will depend on the balance of two opposite forces, taking also into account the difference in timing: crowding-in kicks in earlier, and crowding-out later.

Some links on this topic from the usual suspects:
Paul Krugman Mark Thoma