Crowding Out

When increased government borrowing reduces the funds available for private investment.

Crowding out occurs when a government finances a budget deficit by borrowing heavily, pushing up interest rates and leaving less capital, or more expensive capital, available for businesses and households to borrow. The effect is debated among economists, since it depends on how much slack exists in the economy at the time.

Some economists worried the deficit's crowding out effect would leave less capital for private investment.