Crowding Out (Economics)

In economics, crowding out is a phenomenon in which increased government involvement in part of the market economy substantially affects the rest of the market, on either the supply or demand side. Its most commonly discussed form arises from expansionary fiscal policy funded by deficit spending: when government spending rises and government must borrow more to fund it, it competes with private borrowers in capital markets and tends to push up interest rates, making private investment relatively less attractive and displacing some private spending that would otherwise have occurred. Economists have extended the term to describe other channels through which government activity affects total output, including cases where government supplies goods or services that private industry might otherwise have supplied. Behavioral economists also use crowding out to describe how financial incentives attached to a voluntary exchange can weaken a person's intrinsic motivation or existing prosocial norms. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/