Crowding Out Effect

Crowding Out Effect – an economic theory that argues that rising public sector spending drives down or even eliminates private sector spending.

This theory primarily concerns the scenario where the government chooses to borrow funds. When a government spends more money, it can finance this spending either by increasing taxes, borrowing money, or printing more money.

This effect can occur on several premises, impacting the topics of government spending such as investments and interest rates.

Source: Miccope