Public revenues have mostly remained inadequate for the financing of public investments in developing economies. Therefore, in addition to the use of tax revenues, the choice of getting into debt has also been considered to meet public investments. However, after threshold level, the expansion of debt stock decreases public investments. Revenues are used for debt, principal, and interest payments particularly in developing economies which experience excessive debt stock. This is definitely certain to led to the exclusion of elastic expenditure-component like public investments. The study deals with long and short-term relationships between public investment expenditures and debt interest payments. In the analysis in which are included annual time series data for the period of 1980-2008, Engle Granger and Johansen co-integration test were employed for the determination of the long-term relationship and error correction model was used for the establishment of the short-term relationship. The results obtained show the existence of a bi-directional causality from interest payments to public investments. It was also found that interest payments crowded out public investments due to the existence of a negative relationship between the two variables.
Key words: Public Investments, Indebtedness, Debt-Overhang, Crowding Out, Cointegration
Article Language: EnglishTurkish