Government Expenditure in Enforcing the Law, Financial Intermediation and Development
AbstractThis paper presents a neoclassical growth model with financial intermediation in which government expenditure is used to enforce the law. Government expenditure increases the probability that the financial contract are enforced and reduces financial intermediation costs. There is a feed back process: low per capita capital involves low government expenditure and low probability of enforcing financial contracts, which reduces the incentives to accumulate capital. As a consequence of this feed back process there are three steady states: one without financial intermediation and low per capita capital, another with low probability of enforcing the financial contract and medium per capita capital and other with high probability of enforcing the contract and high per capita capital. The dynamic around the steady state with low enforcing probability is characterized by multiple equilibria and cyclical behavior, the dynamics around the two others steady states presents the typical saddle point dynamics.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centro de Altisimos Estudios Rios Perez (CAERP) in its series Centro de Altisimos Estudios Rios Pe©rez(CAERP) with number 10.
Length: 30 pages
Date of creation: Feb 2003
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-05-15 (All new papers)
- NEP-DGE-2003-05-15 (Dynamic General Equilibrium)
- NEP-MFD-2003-05-15 (Microfinance)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jose-Victor Rios-Rull).
If references are entirely missing, you can add them using this form.