Government spending on infrastructure has recently increased sharply in many emerging-market economies. This paper examines the mechanism through which public infrastructure spending affects the dynamics of the real exchange rate. Using a two-sector dependent open economy model with...

We develop a model in which public capital is both an engine of growth and a determinant of the distributions of wealth, income, and welfare. Government investment increases wealth inequality over time, regardless of its financing. The time path of income inequality is, however, highly sensitive...