Two-Period Model of Government Investment Government investments

Maksym Ivanyna, Alex Mourmouras and Peter Rangazas
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Maksym Ivanyna: Joint Vienna Institute
Alex Mourmouras: IMF

Chapter Chapter 2 in The Macroeconomics of Corruption, 2021, pp 31-77 from Springer

Abstract: Abstract This chapter presents the simplest model for studying investment. The model has two periods. The current period, denoted as period 1, and the future period, denoted as period 2. Investments are chosen and financed in period 1 and the return to investment is realized in period 2. The model has been used frequently in international macroeconomics, both as an introductory pedagogical device (e.g. Obstfeld and Rogoff 1996) and as a tool for analyzing issues on the research frontier (e.g. D’Erasmo and Mendoza 2015). Here, we use the model to examine government investment decisions. The goal of the chapter is to identify how the level and the allocation of government investment should be determined when using purely economic considerations that are in the national interest. The analysis provides the benchmark for comparison to the situation with self-interest, election politics, rent seeking, and corruption, as introduced in Chap. 3 .

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-030-67557-8_2

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DOI: 10.1007/978-3-030-67557-8_2

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