<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Expansionary fiscal policy is mired in controversy. Its proponents suggest that during recession, it stimulates investors’ activity and has a stabilizing effect on economic growth. However, its opponents point to the costs associated with the budget deficit and public debt handling. Increased public spending may result in an increase in the interest rates, which may, in turn, hinder private investment and weaken the multiplier effect of public spending. The following study examines how private spending and market interest rates reacted to changes in public spending in Poland. The study has shown that public spending stimulates private spending, which is consistent with the Keynesian model, but it also leads to an increase in market interest rates, which is consistent with the neoclassical model.</p></abstract>

Expansionary fiscal policy is mired in controversy. Its proponents suggest that during recession, it stimulates investors’ activity and has a stabilizing effect on economic growth. However, its opponents point to the costs associated with the budget deficit and public debt handling. Increased public spending may result in an increase in the interest rates, which may, in turn, hinder private investment and weaken the multiplier effect of public spending. The following study examines how private spending and market interest rates reacted to changes in public spending in Poland. The study has shown that public spending stimulates private spending, which is consistent with the Keynesian model, but it also leads to an increase in market interest rates, which is consistent with the neoclassical model.

The Reaction of Private Spending and Market Interest Rates to the Changes in Public Spending

Koszalin University of Technology, Koszalin,

Foundations of Management

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Expansionary fiscal policy is mired in controversy. Its proponents suggest that during recession, it stimulates investors’ activity and has a stabilizing...

The Reaction of Private Spending and Market Interest Rates to the Changes in Public Spending

Published Online: Sep 24, 2016

Page range: 203 - 210

DOI: https://doi.org/10.1515/fman-2016-0016

Keywords
crowding out, public spending, private spending, interest rates, cointegration

© 2016 Grzegorz Przekota, Agnieszka Lisowska

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

The Reaction of Private Spending and Market Interest Rates to the Changes in Public Spending

Published Online: Sep 24, 2016

Page range: 203 - 210

DOI: https://doi.org/10.1515/fman-2016-0016

Keywordscrowding out, public spending, private spending, interest rates, cointegration

© 2016 Grzegorz Przekota, Agnieszka Lisowska

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
crowding out, public spending, private spending, interest rates, cointegration