Changes in the Structure of Government Spending and its Reflection on Private Investment: A Comparative Study (1990-2021)

The study aims to investigate empirically the impact of government spending, both consumer and investment, on private investment in Australia and Panama for the period (1990-2021), and whether the relationship is competitive or stimulating. It also aims to reveal the direction of the causal relationship between the variables in these two countries. The study used models (Cointegration) for the long-term relationship, vector error correction models (VECM) for the short-term relationship, and (Granger) test for the causal relationship. The study concluded that the effect of government consumption spending is negative (crowding out) to private investment in the long term in both countries, and it is positive in the short term in Australia while negative in the short term in Panama. As for government investment spending, it did not have any effect in both countries and for both terms. As for the causal relationship, it was from government spending, whether consumption or investment, to private investment, and it was not achieved in any direction in Panama.