Introduction
‍The theory of “Crowding-Out” has been studied time and time again and has implications on the economy’s growth. If there is less private investment today, the thought is that it diminishes GDP, which negatively impacts employment and wages. Potentially taking away from what could have been an economy where participants get paid more, are employed and content. The basics of the Ricardian Equivalence however, rebuttals the Classical theory which states that an increase in government budget deficits causes an increase in the real interest rate which pushes out private investment. The Ricardian Equivalence instead says that the change in real interest rate is zero because of a rise in national savings, which shifts the supply curve in the loanable funds market, bringing the quantity of loanable funds higher at the same real interest rate as before. The argument being that deficits lead people to save money in expectance of a future tax hike. (Barro, 1989). The last view is the Keynesian one which was prevalent from the great depression to the current day and stipulates that government deficit spending does not crowd out private investment but is instead crowds it in. Through an increase in government budget deficits, leading to increases in consumer demand through higher consumer confidence and therefore more investment from private firms to meet demand. Through the examination of increased government deficit spending effects on private investment, this paper seeks to prove “Crowding-In”. 
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‍Literature Review
‍Quayes and Jamal (2007) utilize the supply and demand market for commercial bonds as a measure of demand and supply for loanable funds market, respectively. In doing so they set out to conclude that there is no effect to interest rates by the government's investment which shifts the demand curve in the loanable funds market. To do so they rely on the Ricardian Equivalence, as does this paper, which states that there is a response to the increased government spending by people saving more in expectance of a future tax hike to cover the spending. Since savings is the supply in the loanable funds market, then we have an offset of the demand curve shift with a supply curve shift that keeps the real interest rate of constant with quantity of loanable funds has gone up. They simply use two equations to determine the quantity of bonds supplied and demanded. For the demand Quayes and Jamal (2007) account for the long-term interest rate, inflation, real GDP, the volatility index, the government budget deficit, and foreign investment. The theory being that the long-term interest rates up makes borrowing more expensive (a positive relationship), inflation causing less demand due to real income from the bonds going down a fisher equation stipulation, real GDP being a driver of increased demand, volatility causing uncertainty therefore less demand, and foreign investment causing more demand. Through the use of Generalized Least Squares, they find that the increase in government budget deficits do lead to higher interest rates on corporate bonds. Cebula, Koch, William and Toma (2003) come to the same conclusion. In place of using the loanable funds model, the authors seek to find a more direct relationship between the government deficit and how that effects private investment. Examining the private sector investment in new plant and equipment, they seek to also to explain future expectation due to the time horizon it takes for investment of plant and equipment to depreciate. In the discounted present value scenario, they hypothesis that if the discounted present value of an invest is greater than the present value of the increasing output today without forward looking investment. Pulling in quarterly data from 1900 – 1999, Cebula et al. consider the variables that also effect the investment decisions of firms. Deficit spending being the key explanatory variable plus profit of the firms and the money supply growth rate. The results of the study is that for 1% rise in the deficit to GDP ratio, there is a 44% negative change in the ratio of investment to GDP. Whereas there is significant statistically positive relationship with the money supply growth rate and also within the profits that a firm makes. Blackley (2014) finds the David Ricardo response to crowding out to be true for certain cases. Concluding that counter to the classical belief there is an actual “crowding in” of private investment. For investment, the author uses private investment in nonresidential structures and equipment while the explanatory variables are current consumption, exports, government deficits, unemployment rate, profits and the cost of capital. Recognizing the ten-year bonds interest rate as the least default risk, the paper bases the real interest rate on the ten-year treasury bonds. Within the framework the government deficit spending broken down into 3 separate segments; domestic consumption, domestic investment and military investment. The finding showing that a 1% increase in government investment, considered public purchases by the author, causes a .77% decrease in private investment. It also shows that when its broken down into military investment, domestic consumption and domestic investment that there are differences in what causes the crowding out. When looking at the military spending Blackley (2014) finds that private investment goes down .52% for every 1% of government purchases. While for nonmilitary investments made by the government show a “crowding in” effect where an increase of 1% of government purchases results in a .32% increase in private investment. Similarly, Ashauer’s (1989) approach is broken into groups of investments that the government makes. One that makes a distinction between deficit spending that funds infrastructure projects that work in compliment to private investment, and another that examines the capital used for other things which makes the cost of acquiring capital for private investment a lot more expensive. In the latter instance, the investment is one where public goods compete with private ones and also where the resource consumption by the public project pulling resources away for private goods. Finding that the infrastructure projects do compliment the private investments but more as a substitute for their investment, making the productivity of capital higher. The military investment showed no significance. The economic model is one of investment in which deficits and other factors such as profits effect the dependent variable. The study aims to find correlation between the key explanatory variable, deficits and the dependent variable, investment through OLS regression. 
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‍Methodology
‍Firms’ investment decisions rests on a given number of factors. Namely whether or not they expect demand for their goods or profits to be increasing and whether interest rates are low enough for firms to borrow. To study the effects that government deficit spending has on the private investments, this paper comes up with a framework that measures private investment as Gross Private Domestic Investment. The federal budget surplus or deficit data is found on the Federal Reserve Economic Data (FRED) platform as well as all of the independent variables. Utilizing United States annual data from years 1990 through to 2017, this paper finds points in which there is a budget deficit and times where there is a governmental budget surplus.
The investment model is: 

‍Where INV, Gross Private Domestic Investment, is being explained by the independent variables. The key explanatory variable is DEF, the Federal Surplus (+) or Deficit (-), which this paper expects to have a negative effect on private investment. Since the variable has deficits as a negative and surplus as a positive, the sign on the variable is interpreted as opposite of what is given. Making the Ha: β_1 < 0 and implying that deficits have a positive effect from increased government budget deficits. PROF in this equation is Corporate Profits After Tax which is expected to have a positive effect on business investment decisions. The profit rate, PROF_RATE, also has a positive relationship with investment as it measures the ratio of profit to income, as that becomes more efficient it is expected that firms are more likely to make investments. Due to the nature of this study, the main topic at hand is how budget deficits themselves affect the investment decisions of firms.  At the heart of the study is a measurement of how the deficit affects the interest rate, which is the root cause of business investment decisions. Interest rate, INT, takes this into account when measuring investment which is expected to have a negative impact on investment. The unemployment rate, UR, also has a negative relationship with investment, the idea being that as unemployment goes down, businesses are more likely to invest due to the expected rise in wages. The other positive relationship is the money supply growth rate, M2GR.Acquiring all of the data from the FRED, this paper brings into use the Ordinary Least Squares (OLS) method to measure if the government budget deficit has a positive effect on private business investment. The hypothesis this paper takes is stated as such:
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H0: Government budget deficits do not have positive effect on private business investments
HA: Government budget deficits have a positive effect on private business investments.
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Due to the nature of the DEF variable being negative when in deficit and positive when the in surplus the hypothesis stated otherwise is
H0: 𝞫1 ≥ 0
HA:� 𝞫 𝞫1﹤0
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Results
‍To understand the relationship between private investment and government budget deficits, this paper utilizes Ordinary Least Squares regression method. First, examining the relationship the variables have with each other the correlation matrix relays that the independent variables range from moderate to high correlation with investment, this papers’ dependent variable. The exception is the correlation between investment and the unemployment rate which is very low, showing the lack of effect it can have. On the other side of the spectrum, highly correlated with investment is profit which is in line with expectations. The more money a firm has, the more this paper expects the firm to invest. The independent variables also range from low to high correlation, which in the case of profits, deficits and a few of the other variables that are highly correlated with each other, hint at possible multicollinearity. 

The descriptive statistics shows a high standard deviation on the variables INV and DEF which is line with the nominal variables seen in the data and how time has made for larger dollar amounts. The skewness on DEF is notable since the data is negatively skewed which is attributed to the large negative numbers in the dataset.  

The F-statistic on the first regression has a value of 366.89 which allows the paper to reject the null and finds that the variables are jointly statistically significant. The first regression also shows deficits, profit and profit rate to be significant seen from the p-value being less than 5%. Profit is true to theory which gives further validity to the regression while the wrong sign on profit rate calls it into question. The low t-scores on M2GR, UR and INT plus the high Adjusted R-squared in the regression again show there could be more then moderate multicollinearity for which this paper runs a Variance Inflation Factor (VIF) test.  

The centered VIF reveals only moderate multicollinearity which is okay in the model. Lastly, an examination of the Durbin-Watson statistic of .667 is below the dL showing serial correlation in the estimation. 

To address the high Adjusted R-squared and how it potentially shows spurious results, this paper runs Dickey-Fuller on the dependent variable INV and one of the independent variables PROF, finding that both terms are non-stationary and have a unit root. Requiring a Dickey-Fuller test on the residuals to test for truly spurious results. Instead the residuals are stationary, making the regression not spurious, but rather, cointegrated. In which case, taken together, the variables taken together are stationary. 

Re-estimating the equation, this paper includes an autoregressive lag to solve for the serial correlation as seen in the Durbin-Watson statistic. The re-estimated final regression shows p-value significance on the variables DEF, PROF, PROF_RATE and UR. With the coefficients being similar to the first regression, profit stays true to theory. Aware of the nominal variables in the model, this paper includes an @TREND to account for the known nominal variables and time effects. 

Since the coefficient on DEF in the final regression is positive, the null hypothesis cannot be rejected. The coefficient relaying that for every $1 billion budget deficit spending, private investment goes down by $230,000.

‍Conclusion
‍Throughout U.S. history there has been prevailing conflict over the governments purpose in ushering economic growth and management, especially in times of crisis. The earlier Classical theory claimed that the free markets will solve all ailments and the winners will succeed. That the result of government deficit spending is not positive growth, but instead negative due to the pushing out of private investors from the market. As a result of the great depression, there were a couple of responsive theories. One that said that since consumers are rational, they realize future taxes are coming and compensate by saving money, keeping the interest rates that would have pushed out private investors in the classical theory, the same. Coined Ricardian Equivalence, it argued that people are effective in understanding the consequence of deficit spending. While the Keynesian theory, said that in response to deficit spending, the consumers have a perception of increased wealth, leading to increases in aggregate demand, and as a consequence, private investment to meet the demand. This study provides evidence disagreeing with the Keynesian theory which states that government budget deficits has a positive effect on private investment. Through the use of an investment function that accounted for government deficit spending, interest rates, money supply growth rate, unemployment rate and profit rate, the study finds that an increase of $1 billion dollars of government deficit spending leads to $230,000 dollars of decreased private investment spending. 
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References
‍Aschauer, D. A. (1989). Does Public Capital Crowd Out Private Capital? Journal of Monetary Economics, 24(2), 171–188.https://doi-org.proxy.lib.csus.edu/
http://www.sciencedirect.com/science/journal/03043932
Barro, R. J. (1989). The Ricardian Approach to Budget Deficits. Journal of Economic Perspectives, 3(2), 37–54. https://doi.org/http://www.aeaweb.org/jep/
Blackley, P. R. (2014). New Estimates of Direct Crowding Out (or In) of Investment and of a Peace Dividend for the U.S. Economy. Journal of Post Keynesian Economics, 37(1), 67–90. Retrieved from https://doi.org/http://www.tandfonline.com/loi/mpke20#
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Cebula, R. J., Killingsworth, J., & Belton, W. J., Jr. (1994). Federal Government Budget Deficits and the Crowding Out of Private Investment in the United States. Public Finance, 49(2), 168–178. Retrieved from https://search-ebscohost-com.proxy.lib.csus.edu/login.aspx?direct=true&db=ecn&AN=0390572
Cebula, R., Koch, J., Perry, W., & Toma, M. (2003). Federal Government Budget Deficits andthe Crowding Out of Private Investment in the United states: Evidence for the 1990s. Munich Personal RePEc Archive, 49(2), 168–178. Retrieved from http://mpra.ub.uni-muenchen.de/54571/
QUAYES, S., & JAMAL, A. M. M. (2007). Budget Deficits and Interest Rates: The Us Evidence since 1946. Singapore Economic Review, 52(2), 191–200.Retrieved from https://doi-org.proxy.lib.csus.edu/10.1142/S0217590807002646