Crowding-out Effect Research Articles

The Road of Federal Infrastructure Spending Passes Through the States

Because federal infrastructure spending largely takes the form of grants to state governments, the macroeconomic impact of such packages depends on the share of federal grants that “passes through” to actual infrastructure spending done by states. A low degree of pass-through would tend to mute the economic impact from federal grants, reflecting a crowd-out effect on state spending. We first revisit Knight’s (2002) influential finding of near-zero pass-through (perfect crowd out) of federal highway grants. That result is found to be specification-sensitive and is reversed completely in a longer sample, with estimates implying dollar-for-dollar pass-through of grants to spending. We then extend the analysis to allow for dynamics. We find a contemporaneous pass-through effect of about 1 and a longer-run cumulative effect of around 1.3. In the parlance of public finance, the flypaper effect is strong.

Evolution of Altruistic Motive and Crowding-out Effect in Turkey: Does Private Housing Support Matter?

This paper aims to contribute to the growing literature on crowding out/in effects of public transfers in Turkey. We estimate the effects of public transfers on the amount and likelihood of receiving private transfers. We find that individual-level public transfers lead to crowding out whereas public transfers targeting households have no significant neutralizing effect. Comparing consecutive periods, the effect of altruistic motivation and crowding out are both decreasing. The broadly defined private transfers including housing support have a downstream character, are less altruistically motivated and produce less crowding out than with the narrow definition. This study has several policy implications: (i) public transfers for families excluded from social security coverage should be increased; (ii) public transfers targeting households should be strengthened; (iii) lone parents, particularly female-headed households should be prioritized; (iv) social welfare policy needs to complement private solidarity channels as the family structure and income composition of households change.

An Empirical Test of Low-Carbon and Sustainable Financing’s Spatial Spillover Effect

In this paper, the panel data of 30 provinces in China from 2011 to 2019 are analyzed by the spatial measure model and the threshold regression model. The results show that the air quality level is positively correlated with green finance, but there is no spatial effect. The spatial effect of the three influencing factors, including the degree of openness, the level of infrastructure, and the level of education, is the crowding-out effect. At the same time, variables such as human resource level, air quality, and infrastructure construction level all have threshold effects in the relationship between green finance and economic development. The research conclusions suggested that local governments at all levels should formulate policies according to the actual situation to promote the development of provinces’ intensive, intelligent, and green development, and build a regionally-linked green finance development model, thereby promoting the improvement of green finance.

The crowding out effect of central versus local government debt: Evidence from China

We empirically investigate the impacts of central government debt and local government debt on corporate debt in the Chinese domestic financial market during 2008–2019. We find that both central government debt and local government debt are negatively related to corporate debt. Central government debt affects corporate debt by crowding out corporate bonds, which we refer to as the safety crowding-out effect and consistent with literature findings. Local government debt affects corporate debt by crowding out corporate loans, referred to as the financial crowding-out effect. We also identify the mechanisms behind the financial crowding-out effect through the banks' asset portfolio and thickness of the lending market. We confirm the mechanism by examining how the heterogeneity of local government health, government debt risk, and firms' characteristics affect the financial crowding-out effect.

Oil revenues vs domestic taxation: Deeper insights into the crowding-out effect

This paper exploits the 2000s commodity price boom to identify the impact of oil revenues on domestic taxation in oil exporting countries. It estimates the average effect of oil revenues on non-resource taxation for 19 oil exporting countries using synthetic control methodology and finds that non-resource tax per capita is on average 14% lower in oil exporting countries because of the 2000s commodity price boom compared to a scenario without price shock. This result confirms the existing literature concerned with the resource revenues vs domestic taxation debate. Additional knowledge is derived from the synthetic control method showing that the effect is heterogeneous and occurs only in oil exporting countries with a low level of institutional quality, which are highly oil dependent and prefer the use of tax instruments rather than non-tax instruments. Furthermore, the dynamics of the effect differs in countries with a state-owned oil sector compared to a private-owned oil sector. These findings are new within the debate and contribute to our understanding of the effect of natural resources on domestic taxation. Policy makers concerned by a crowding-out effect should invest the oil dividend to improve their tax administration to avoid the negative consequences accompanying low domestic taxes such as the resulting dependency on a volatile income stream from oil, difficulty in achieving non-fiscal objectives, and lack of positive externalities from taxes such as transparency and better governance.

Evolution of Urban Construction Land Structure Based on Information Entropy and Shift-Share Model: An Empirical Study on Beijing-Tianjin-Hebei Urban Agglomeration in China

Urban agglomerations are important carriers of the current world economic development and economic center of gravity shift, while urban construction land structure reflects and influences the functions and development directions of urban agglomerations and cities within them. It is significant to study the characteristics of urban construction land structure in urban agglomerations. Based on information entropy model and shift-share model, this study discusses and analyzes the evolution characteristics and spatial allocation differences of urban construction land structure in Beijing-Tianjin-Hebei urban agglomeration, and simulates the spatial allocation differences with the help of GIS technology. The empirical research results show that from, 2006 to 2017, the overall structure of urban construction land in Beijing-Tianjin-Hebei urban agglomeration changes alternately between “orderly” and “disorderly”, and finally the overall development was slightly disordered. Furthermore, there are significant differences in the competitiveness of different types of land in different cities. Among them, green land, public facilities land, and road traffic land show obvious replenishment effect, which are mainly distributed in Handan-Zhangjiakou northwestern Hebei, Tianjin-Cangzhou in the eastern coast, Baoding-Xingtai in central and southern Hebei, while industrial land and storage land, which are mainly distributed in Beijing-Tangshan-Langfang around the capital and Shijiazhuang-Handan-Hengshui in central and southern Hebei, show obvious crowding-out effect. In addition, the temporal changes and spatial allocation differences of urban construction land structure are influenced by many factors, such as economic development, industrial structure, population size, etc. Therefore, it is suggested that the coordinated development of urban agglomerations should adhere to the principle of “differentiated development before coordinated development, local coordinated development before overall coordinated development”.

Bank Competition, Financing Constraints, and Enterprise Innovation Investment

Based on the data of China’s listed companies from 2007 to 2020 and the financial license of the China Banking and Insurance Regulatory Commission, this paper analyzes the influence of bank competition on enterprise innovation investment and its mechanism. It is found that bank competition can improve the enterprise innovation investment, which still holds true after endogenous treatment and robustness test. Further research demonstrates that bank competition plays a stronger role in enterprise innovation for non‐state‐owned enterprises and small‐scale enterprises. The mechanism analysis shows that bank competition can promote enterprise innovation investment and enterprise financialization by easing financing constraints. Moreover, enterprise financialization has a crowding‐out effect on enterprise innovation investment. Therefore, moderately intensifying bank competition, further improving the financial system, and deepening the financial marketization reform have profound effects on driving enterprise innovation and its high‐quality development.

Individuals’ willingness to provide geospatial global positioning system (GPS) data from their smartphone during the COVID-19 pandemic

This study aims to evaluate people’s willingness to provide their geospatial global positioning system (GPS) data from their smartphones during the COVID-19 pandemic. Based on the self-determination theory, the addition of monetary incentives to encourage data provision may have an adverse effect on spontaneous donation. Therefore, we tested if a crowding-out effect exists between financial and altruistic motivations. Participants were randomized to different frames of motivational messages regarding the provision of their GPS data based on (1) self-interest, (2) pro-social benefit, and (3) monetary compensation. We also sought to examine the use of a negative versus positive valence in the framing of the different armed messages. 1055 participants were recruited from 41 countries with a mean age of 34 years on Amazon Mechanical Turk (MTurk), an online crowdsourcing platform. Participants living in India or in Brazil were more willing to provide their GPS data compared to those living in the United States. No significant differences were seen between positive and negative valence framing messages. Monetary incentives of $5 significantly increased participants’ willingness to provide GPS data. Half of the participants in the self-interest and pro-social arms agreed to provide their GPS data and almost two-thirds of participants were willing to provide their data in exchange for $5. If participants refused the first framing proposal, they were followed up with a “Vickrey auction” (a sealed-bid second-priced auction, SPSBA). An average of $17 bid was accepted in the self-interest condition to provide their GPS data, and the average “bid” of $21 was for the pro-social benefit experimental condition. These results revealed that a crowding-out effect between intrinsic and extrinsic motivations did not take place in our sample of internet users. Framing and incentivization can be used in combination to influence the acquisition of private GPS smartphone data. Financial incentives can increase data provision to a greater degree with no losses on these intrinsic motivations, to fight the COVID-19 pandemic.

Blood Donation and Monetary Incentives: A Meta-Analysis of Cost-Effectiveness.

The effectiveness of monetary incentives to increase altruistic behavior is in dispute. Paying blood donors might be ineffective, as it could decrease altruistic motivations of voluntary donors (motivational crowding-out) or decrease blood quality (increase transmittable infectious disease risks). In a meta-analysis, including observational studies, natural experiments and field experiments, the cost-effectiveness of monetary incentives (cash payments and quasi-cash material rewards) for blood donation is estimated. The search strategy identified 17 studies as eligible. After screening for relevance and quality, 8 studies were retained and GRADE-rated for quality of evidence, offering 12 estimates of the marginal donation rate. The combined, random-effects estimate of the marginal donation rate of monetary incentives is 0,4 extra blood units collected per 1000 inhabitants per year per dollar incentive, but with large variation due to large heterogeneity of the studies (explained by different contexts and differences in perceived costs for donors). A higher estimate of 1,0 extra blood units per 1000 inhabitants per year per dollar incentive, is obtained with a restricted meta-analysis that only includes the most reliable and more homogeneous studies. With donor payments, it costs an additional $22 to $121 to increase the blood supply with one unit of whole blood, but this strongly varies with context and local conditions. The positive marginal donation rate of donor payments is inconsistent with a crowding-out effect (a reduction in total blood supply caused by a decrease in altruistic motivations when donors are paid), at least in the short-run. The available studies are not suitable to estimate possible long-term crowding-out effects, negative spillover effects (eg, a decrease in other prosocial behavior or altruistic norms) or transmittable infectious disease risks. Whether monetary incentives are the most cost-effective and ethical strategy to increase blood and plasma supply, remains an open question.

Real Estate Price, Shadow Banking, and Investment: the Mix of Collateral and Crowding-Out Effects

Real Estate Price, Shadow Banking, and Investment: the Mix of Collateral and Crowding-Out Effects

Promoting exercise behavior with monetary and social incentives: An empirical study based on an online fitness program

Due to the importance of employees’ physical well-being, organizations have long been conducting wellness programs to motivate their employees to exercise. The wide use of wearable devices (e.g., smart bands and smartphones) and fitness applications (e.g., fitness mobile applications) enable organizations to shift from offline to online fitness programs where participants use physical activity records tracked by wearable devices to complete fitness tasks and challenges. To better motivate employees’ exercise behavior, online fitness programs widely offer monetary or social incentives strategies. However, little is known about the interaction effects of the two types of incentives when they are jointly offered. Besides, organizers lack knowledge of how to set an optimal fitness challenge for the incentives in online fitness programs. In this study, we obtained a rich panel dataset from a university-wide online fitness program, which includes the daily exercise records of 2578 participants during a 100-day period, to empirically investigate the joint effects of monetary and social incentives on individuals’ exercise behavior. Most interestingly, we found that there is a crowd-out effect between monetary and social incentives—the influences of social incentives (i.e., social support and social contagion) are relatively weaker when there exists an unachieved monetary goal; once the monetary goal has been achieved, the influences of social incentives become stronger. In addition, we found that participants’ exercise behavior can be maximized when the dynamic goal is set at an optimal level. Our findings can help practitioners better design the online fitness programs and the associated fitness technologies.

The Impact of Climate-Change-Related Disasters on Africa's Economic Growth, Agriculture, and Conflicts: Can Humanitarian Aid and Food Assistance Offset the Damage?

This study analyzed the impact of climate-related natural disasters (droughts, floods, storms/rainstorms) on economic and social variables. As the Africa-specific empirical literature is limited, this study used panel data from 1961–2011 on Africa. The study used a panel data regression model analysis. The results showed that climate change-related natural disasters affected Africa’s economic growth, agriculture, and poverty and caused armed conflicts. Among the disasters, droughts are the main cause of negative impact, severely affecting crops such as maize and coffee and resulting in increased urban poverty and armed conflicts. In contrast, international aid has a positive effect but the impact is insignificant compared to the negative consequences of climate-related natural disasters. Cereal food assistance has a negative crowding-out effect on cereal production. International donors should review their interventions to support Africa’s adaptative capacity to disasters. Government efficiency has reduced the number of deaths, and this is an area that supports Africa’s adaptative efforts.

Implications of the state assistance program in the province of Quebec: the case of lamb production

  This study investigated the impact of the Farm Income Stabilization Insurance (ASRA) on the adoption of price risk management strategies by lamb producers in the province of Quebec. This study employed a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) process to model price risks. The results indicated that the application of the Farm Income Stabilization Insurance in Quebec generates crowding-out effects on price risk management strategies, which decreases the efficiency of this program. On the other hand, the product-specific nature of ASRA leads to some challenges such as a modification in the revenue distribution across the farm, increased production, increased indebtedness of farmers and increased financial burden on governments’ shoulders. Finally, the results revealed an asymmetric impact of positive and negative shocks on the production decision of lamb producers. This asymmetric impact of negative and positive shocks generated by ASRA results in an increasing risk-aversion of producers over the periods of decreased prices and a decreasing risk aversion over the periods of increased prices.

Effect of Military Spending on Private Investment in Nigeria: Does Crowding-Out Effect Exist?

Effect of Military Spending on Private Investment in Nigeria: Does Crowding-Out Effect Exist?

INTERNAL IMBALANCES AND GROWTH IN UKRAINE IN THE VIEW OF FISCAL AND MONETARY ISSUES

Introduction. The frequent crises are a vital impediment to growth in Ukraine. One of the reasons is the accumulated imbalances, which objectively arise if ignoring the economic fundamentals in economic policy implementation. The purpose of the article is to study internal imbalances in Ukraine to determine the causes and consequences of economic slack given fiscal and monetary issues. Results. A critical observation of the Quantity Theory of Money approach in the balance between aggregate demand and supply made it possible to reconstruct the Ukrainian economy’s circular motion for the last ten years. The generation of the coincident and leading composite indices confirmed a difference to be at play between aggregate supply and demand. The parametric Early Warning System modeling results showed that an additional percentage of imbalances between aggregate demand and supply increased the likelihood of crises in Ukraine by 4%. The severe influence of the debt factor on macroeconomic dynamics made it possible to build up a quarterly econometric model by retranslating the exponential trend of the domestic public debt accumulation on GDP motion. The developed Dynamic Stochastic General Equilibrium model made it possible to reconstruct the economy’s prospect to move sustainable growth path, subject to implementing the golden rule of public finance. The fiscal multiplier effect offset the short-run crowding-out effect resulting from debt accumulation for financing public investment in favor of increased production in the long term. The significant parameter in this scenario is public investments efficiency, the increased level of which has to be one of the goals of the economic policy implementation. Conclusions. Fiscal-monetary interaction is crucial for counteracting macroeconomic imbalances and activating economic dynamics. Given the rise in public debt in Ukraine due to the Covid-19 pandemic, borrowing should be cautious while performing the fiscal investment expansion to stimulate growth.

Preferential tax policy and R&D personnel flow for technological innovation efficiency of China's high-tech industry in an emerging economy

As an emerging economy, the two-phase innovation inefficiency of China's hi-tech industry caused by a preferential tax policy should be addressed. Using the SAR Tobit econometric model and the panel data from China's 30 regional hi-tech industries covering 2004–2016, this paper investigates the main effect, masking effect and moderating effect of preferential tax policy on the two-phase innovation efficiency of China's hi-tech industries. We find that the R&D technical efficiency and business transformation efficiency of China's hi-tech industries have remarkably spatial autocorrelation and spatial spillover effects. The preferential tax policy has an obvious crowding-in effect on R&D technical efficiency and an obvious crowding-out effect on business transformation efficiency. Economic policy uncertainty negatively regulates the relationship between preferential tax policies and R&D technical efficiency. Regional heterogeneity is apparent in regional regression. Preferential tax policy can facilitate the R&D technical efficiency in coastal areas and in inland areas, while only preferential tax policy positively contributes to business transformation efficiency in coastal areas. In the R&D technology stage, the negative indirect effect of R&D personnel flow weakens the positive direct effect of the preferential tax policy, which is manifested as an obvious masking effect; in the business transformation stage, the positive indirect effect of R&D personnel flow weakens the negative direct effect of the preferential tax policy, which is manifested as an obvious masking effect. The research results provide a reference for the scientific formulation of national tax preferential policies, the design of innovative talent flow policies and the promotion strategies of innovation efficiency of hi-tech industries.

The impact of public debt on domestic and foreign direct investments in developing market: An ARDL bounds testing approach

This research investigates the effect of the components of state government debts (domestic and external debts) on the various forms of investment (domestic investment and foreign direct investment — FDI) in Sri Lanka both in the short and long terms applying the ARDL bounds testing approach over the period, 1980–2020. The previous research has revealed that higher internal and external government borrowing lowers domestic investments in both the short and long terms, confirming the crowding-out effect of public debt on the volume of domestic investment of our country. The research discovered that internal debt accumulates FDI inflows in the short term, but it crowds out FDI when considering the long term. In contrast, foreign debt has a substantial inverse connection with FDI inflows in the short term, as expected, but it does not influence FDI in the long run. The findings also showed that higher lending rates of interest share a considerably inverted connection with domestic investments, but it does not have any impact on the long-term FDIs. However, in the short term, an increase in the rate of lending interest rate decreases the prospect of external financiers and crowds out the course of FDI in Sri Lanka. Further, the depreciation of the exchange rate decreases both domestic investment and the flow of FDI in the short-run, but it encourages both types of investments in the long run

The economic impact of a deep decarbonisation pathway for China: a hybrid model analysis through bottom-up and top-down linking

The development of mid-century low-emission development strategies is critical to guiding national actions on long-term mitigation. One of the key concerns in developing mitigation strategies is the cost of the low-carbon transition. In this study, we estimate the macroeconomic cost of a deep decarbonisation pathway for China, by integrating an energy-systems optimisation model with an economic model through hard linking. Our results indicate that deep decarbonisation increases the energy expenses of Chinese households in the mid-run due to the higher cost of electricity. However, firms will benefit from moderate decarbonisation as a result of a reduction in coal and oil consumption. As a result, energy-efficiency improvements lead to a reduction in firms’ total energy costs, partially compensating the crowding-out effect of low-carbon investments on general productive capital. Our mitigation scenario has therefore a small macroeconomic cost compared to business as usual, equal to a lag in the growth of less than one year in 2050.

Does environmental information disclosure promote the supply of environmental public goods? Evidence based on a dynamic spatial panel Durbin model

This paper attempts to provide a more systematic view of the relationship between environmental information disclosure (EID) and environmental public goods (EPG) to reconcile the existing conceptual controversy and empirical inconclusiveness. Based on the data on 202 cities and listed companies in China from 2008 to 2018, this paper constructs a dynamic spatial panel Durbin model to systematically investigate the impact mechanism of the impact of EID on the supply of EPG by local governments. The results show that there is a certain path dependence in the supply of EPG, and that there is a race to the bottom exists among local governments. EID helps promote the supply of EPG in local and surrounding cities. EID has a crowding-out effect on foreign direct investment (FDI) capital, which subsequently improves the supply level of EPG. In areas with a high degree of corruption, the authenticity of EID is questioned; thus, so the incentive effect on EPG is reduced. These findings can serve as an important reference provide important references for developing economies to improve their environmental management systems and achieve green transformation.

PIGS ECONOMIES: BAIL-OUT VS. BAIL-IN

This paper analyzes bail-out and bail-in programs in the Eurozone periphery economies after the transformation of the global crisis into a debt crisis. Continuous rise of debt service costs was leading PIGS economies (Portugal, Ireland, Greece, Spain) either to abandon of Eurozone or to negotiate rescue programs. Using Panel corrected standard errors (PCSE) method, the research shows that bail-out programs had a negative effect on GDP growth in PIGS economies in the period 2011-2019, as the consequence of crowding-out effects. However, the results showed that bail-out programs could positively affect fiscal variables. An alternative solution is the bail-in mechanism, which is a sustainable mechanism that does not burden taxpayers. Based on examples of banks in Spain and Portugal, results show that using bail-in programs, panic and contagion effects could be avoided; however, in the case of future crisis, the effects of bail-in programs on the real economy still need to be examined.