Crowding out: Assessing the fiscal risks to growth

Big budget deficits are fuelling fears about fiscal sustainability, but the potential negative effects on growth are receiving less attention. While Germany is embarking on a major fiscal expansion, the risk of crowding out private sector activity is generally low given ample spare capacity in most parts of its economy. Instead, were their governments to loosen fiscal policy, crowding out risks are higher in Japan, the US, and France.