15. How would one go about evaluating how important crowding out is? What difficulties might one encounter?

We would simply want to see how investment is related to changes in government expenditure. The main difficulty is dealing with the identification problem. For example, the government might increase spending every time investment falls to prevent a recession (this is the Keynesian presciption as we shall see). Thus, rising government expenditure will be associated wth falling investment even if the the former does not directly cause the latter.