Browsing by Author "Rahko, Jaakko Eemeli"

The public sector in Finland is large and has been growing over the years. This has been because of the large welfare state and government programs that have expanded with economic growth. Large central government matters because it has a big market impact. It is worthwhile to consider how government investments affect the private sector. In this master’s thesis, I study how government investments affects the private sector firm investments in Finland. Government investments can either crowd out (reduce) or crowd in (increase) private investments. There has been much international interest in studying the crowding out phenomena but in Finland, the research is scarce. My thesis adds to this by focusing on different private investment categories enabling a more detailed understanding of the crowding out effect. The data for the thesis consist of government and private firm investment statistics in Finland from the start of the euro in 1999 to the most recent available data in 2022. The private investments can be divided into four main categories, overall, construction, equipment, and assets. The impact of government investment is studied with a SVAR(8) model with sign restrictions. For the model identification, I have used statistical identification. I find that the overall private investments are crowded out by government investments, but that there are differences between investment categories. Equipment investments experience the most crowding out, whereas construction investments are less affected. Notably the private asset investments are crowded in.