What is Crowding In?

The callcrowding in or attraction effect refers to the stimuli that, through public spending, are exerted on the economy. It is an expansion effect of the public sector, since they introduce into the economy expenses that favor it. At the same time, it is an expansion expense to the private sector, since the main purpose of this stimulus is to have the necessary capital to generate projects that give us cost effectiveness.Contrary to the displacement effect we find the crowding out.

Government investment induces an increase in domestic demand that attracts, in turn, private investment from other companies. On the other hand, if government investment is financed through loans, the market interest rate increases and discourages private investment.

There is a relationship between the impact of private investment and public investment, as well as the figures that are handled. In this way, we can see that the private investment figures and the public investment figures are positively related, one figure increasing in percentage at the same time as the other. On the other hand, investment in infrastructure must be maintained or, in any case, its composition improved since we could model economic variables and observe the trend to see how it affects the growth of the national economy.

Finally, we are going to emphasize that the perfect state of the economy would be fiscal consolidation over time. This is achieved by facilitating the maintenance of low interest rates, generating an appeal to private investment and promoting economic growth that is not inflationary (Sometimes job creation is also feasible).


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