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2021 | OriginalPaper | Buchkapitel

2. Two-Period Model of Government Investment

verfasst von : Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Erschienen in: The Macroeconomics of Corruption

Verlag: Springer International Publishing

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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.

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Vorheriges Kapitel Introduction

Nächstes Kapitel Politics and Corruption in the Two-Period Model

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Saez and Stantcheva (2016) develop ways to generalize the traditional utilitarian social welfare function used here in order to reflect considerations that may be important for policy formation. For example, society may want policy makers to place greater weights on households that have a greater willingness to work or that have come from disadvantaged family backgrounds.

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The economy never literally reaches the steady state, although it will get arbitrarily close.

Note that σ = (2 − μ)/(1 − μ) is greater than 2 because it is increasing in μ, so its smallest value is when μ = 0.

There are other models where the investment rate in the future generation can decline as a fraction of family resources even in the case where σ = 1. See Mourmouras and Rangazas (2007) and Das et al. (2018, Chap. 4).

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Titel: Two-Period Model of Government Investment Government investments
verfasst von: Maksym Ivanyna
Alex Mourmouras
Peter Rangazas
Verlag: Springer International Publishing
Buch: The Macroeconomics of Corruption
Print ISBN: 978-3-030-67556-1

Electronic ISBN: 978-3-030-67557-8

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-67557-8_2