Carnegie Mellon University
Government the private sector and crowding out.pdf.pdf' (672.22 kB)

Government, the private sector, and "crowding out"

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journal contribution
posted on 2003-07-01, 00:00 authored by Karl Brunner, Allan MeltzerAllan Meltzer

The growth of government in all western countries is a remarkable phenomenon of our time. The growth is not adequately described b;/ measures commonly employed such as the share of output absorbed by government or the share of national income taken by taxes. Large and persistent budget deficits force adjustments on the capital market and on banks. A wide range of government policies and regulations force enterprises to choose less efficient production techniques. Frequent changes in the 'rules of the game', and arbitrary decisions and interpretations of existing rules reduce freedom and efficiency, raise costs and divert resources from socially productive activities to negotiations or bargaining with government agencies about the interpretation of regulations or their specific application. As the size of government grows and the regulations become more detailed, and more arbitrary, uncertainty about the future increases. Long-term investment is deferred, or deterred, independently of the efforts occurring on the capital and labour markets


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