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...

This paper develops a theoretical framework for understanding the mechanism through which foreign aid affects macroeconomic performance. We find that the long-run impact of an aid program and the nature of the transitional dynamics it generates depend crucially on (i) the elasticity of...

The paper develops a theoretical framework for understanding the mechanism through which foreign aid affects macroeconomic performance. The authors find that the long-run impact of an aid program and the nature of the transitional dynamics it generates depend crucially on (i) the elasticity of...

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...