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EFFECTIVENESS OF FISCAL SPENDING IN THE PRESENCE OF PERSISTANT BUDGET DEFICIT IN NAMIBIA: CROWDING OUT OR CROWDING IN

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Author(s): Gaotlhobogwe R. Motlaleng

Journal: International Journal of Economics and Research
ISSN 2229-6158

Volume: 2;
Issue: 1;
Start page: 96;
Date: 2011;
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Keywords: crowding out/in | government spending | government budget deficits | private investment | lending interest rate | gross domestic product | co-integration

ABSTRACT
This paper probes the effectiveness of fiscal spending in the context of crowding out/in hypothesis for Namibia. The neoclassical school advocates that private investment is dampened by an increase in government spending. On the other hand an increase in government spending stimulates private investment in the Keynesian model. Two models have been estimated to carry out this investigation using time series quarterly data for the period 1990:Q1 - 2005:Q2. The first model used government expenditures. The second model employed government budget deficit together with gross domestic product and lending interest rate. The main findings of the paperverify both the Keynesian and neoclassical views for Namibia. While increases in government spending are found to crowd in private investment, government budget deficits are found to crowd it out. The evidence has important implications for fiscal management. If the Namibian government increases its spending and at the same time is running a budget deficit financed through excessive borrowing from the domestic market this has a potential to crowd out private investment
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