Curtin Business School and Curtin University of Technology
Abstract:
Economictheory suggests thatthe way government finances its expenditure
determines the effectiveness of fiscal expansionary policy. This paper
considers a simple investment model embedded in a Markov regimeswitching
framework, where parameters are subject to shift between
two regimes: crowding-in and crowding-out (of private investment by
government investment). Using Taiwanese data, the study finds dominant
crowding-in effects before 1980, and dominantcrowding-out effects after
1980. The dating correctly separates two exchange rate regimes (a fixed,
then a flexible rate regime). One conclusion is that fiscal policy is ineffective
in a flexible-rate regime
Relation:
Asia pacific journal of economics and business 6(2), pp.74-92
