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Two-Period Model of Government Investment

In: The Macroeconomics of Corruption

Author

Listed:
  • Maksym Ivanyna

    (Joint Vienna Institute)

  • Alex Mourmouras
  • Peter Rangazas

    (IUPUI Economics)

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 here provides the benchmark for comparison to the situation with self-interest, election politics, rent seeking, and corruption, as introduced in Chap. 3 .

Suggested Citation

  • Maksym Ivanyna & Alex Mourmouras & Peter Rangazas, 2018. "Two-Period Model of Government Investment," Springer Texts in Business and Economics, in: The Macroeconomics of Corruption, chapter 2, pages 31-71, Springer.
    • Handle: RePEc:spr:sptchp:978-3-319-68666-0_2
    DOI: 10.1007/978-3-319-68666-0_2
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