Two small countries facing a constant probability of war with each other import arms for consumption goods from the rest of the world. The defense good, produced by combining arms and army, is a public good. The reaction curve depicting the optimal supply of the defense good turns out to be...

We consider the effect of an increase in public investments on output in Europe against the background of a sharp drop of public investments in a number of EU countries during the crisis and subsequent policy discussions on the need to stimulate public investments. We start with a brief overview...