What are the best indicators to measure the crowding-out effect of public debt on private investment?

When I'm trying to measure the crowding-out effect of public debt on private investment, I focus on the interest rate spread. In my view, the spread between government bonds and private sector interest rates is a key indicator. If the spread widens, it often means higher public debt is driving up interest rates, making it more expensive for businesses to borrow and invest. I also look at overall investment trends. If private investment is slowing down while public debt is rising, that’s a red flag. Keeping an eye on these indicators helps me understand how public borrowing might be impacting private sector growth and adjust my strategies accordingly.

Expanding on the significance of the interest rate spread in illustrating the crowding-out effect, it's important to explore how it interacts with risk premia, inflation expectations, and liquidity preferences. By examining these factors in greater detail, we can better understand their influence on the cost disparities between public and private borrowing. Sharing such insights not only clarifies the complexities behind this indicator but also aids in formulating more nuanced financial and economic policies.

this ratio is crucial because it shows the total amount of credit in the economy relative to its GDP. If the credit-to-GDP ratio is clibing while public debt is also rising, it can signal that the government borrowing is soaking up the available credit, making it harder for businesses to get loans. I see a high credit-to-GDP ratio as a potential warning sign that private sector investment might be getting squeezed out. It’s a key metric that helps me gauge the balance between public and private borrowing and its impact on economic growth.

The credit-to-GDP ratio is an insightful metric, reflective of broader economic conditions. Expanding on this, we can consider how varying levels of financial development, regulatory frameworks, and innovations influence this ratio. By exploring these additional factors, we can gain a deeper understanding of their impact on credit availability and economic health. Sharing such analyses can contribute significantly to discussions on economic strategies and policy-making.

When I think about the crowding-out effect of public debt on private investment, debt sustainability is a big deal. Simply put, it’s about whether a country can handle its debt without causing problems. If the debt is manageable, the government can keep borrowing without hurting private businesses too much. But if the debt gets too high and isn’t sustainable, trouble starts. High debt can push up interest rates, making it more expensive for businesses to borrow money. This can seriously cramp private investment. So, keeping an eye on debt sustainability helps me figure out if government borrowing is squeezing the private sector and affecting the economy’s health.

Mainstream economics suggests that the crowding out effect of rising government debt can be offset by economic growth driven by effective fiscal and regulatory policies, enhancing debt sustainability. However, this overlooks the declining marginal productivity of debt, which shows how much GDP each new dollar of debt generates. The secular decline in marginal productivity of debt indicates that as government debt increases unsustainably without proportional GDP growth, more income is diverted to service debt, crowding out private investment. This major flaw in irredeemable currency systems will need to be addressed before other fiscal policy objectives can be attempted.

Just few thoughts: 1. There are other sources of funds/ capital for the private sector such as non banksv, capital markets and internal sources 2. Govt also has other bigger sources such as revenue and non bank borrowing 3. Govt spend much of its funds for recurrent expenditure which is essential ( though inefficient), hence less on investment... But these are captured in in the GDP....