14. Do Crowd Out Effects Differ in Recession and Non-recession Periods?

This chapter reexamines models previously tested to determine if results of stimulus programs net of crowd out are different in recessions than in non-recession periods. The 13 tests conducted in this chapter indicate they are not despite the decline in private borrowing in recessions, which theoretically should allow additional government borrowing without reducing what is available to meet now—lower private borrowing needs. But empirically, the study finds crowd out continues to occur. This appears to be because the pool of loanable funds declines as much or more than private loan demand. The monies available for private borrowing decline as much or more than the decline in private loan demand. This leaves the p crowd out effects of new deficit-financed stimulus programs as great as in non-recession periods.