Abstract
The term crowding out has received a great deal of attention in financial newspapers and publications on economic policy in recent years. However, it has not always been used univocally. The term has been employed to allude to at least two different phenomena: 1) the gradual decrease of credit otherwise destined for the private sector due to growing public demand; 2) the reduction of private spending otherwise achievable through increased public spending. The present work seeks to provide greater clarity on the concept of crowding out. The author looks at some situations of public sector borrowing and spending in order to clarify if and when financial and real crowding out occurs. For the sake of simplicity, the role of interest rates, although obviously contextual , is dealt with following the examination of cash flows and the allocative function of the price system. JEL: E43, E51
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