Bu, Yisheng (Liberty Mutual Group, Boston, Massachusetts 02116, USA)
Abstract
This paper examines the possibility that foreign aid financing for public capital accumulation in developing countries may lead to excess depreciation of capital. The depreciation rate on public capital is endogenised in a general equilibrium framework in which the government collects a consumption tax to finance maintenance and repair expenditures as well as public investment. Two simple cases are formulated and analysed to show that excess depreciation of public capital may result from budgetary and international aid and financing distortions that skew allocations to new investment rather than to maintenance of existing capital.
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Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).
Volume (Year): 34 (2004) Issue (Month): 2 (September) Pages: 189-202 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity F35 - International Economics - - International Finance - - - Foreign Aid H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Chari, V.V. & Kehoe, Patrick J., 1999.
"Optimal fiscal and monetary policy,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745
Elsevier.
[Downloadable!] (restricted)
Craig Burnside & David Dollar, 2000.
"Aid, Policies, and Growth,"
American Economic Review,
American Economic Association, vol. 90(4), pages 847-868, September.
[Downloadable!] (restricted)
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