Working Paper Series, UCD Centre for Economic Research 05/01
This paper addresses the puzzle that public services in some developing countries, especially in Africa, are poor despite large public expenditure. The intertemporal model here studies a government’s optimal choice between redistribution and public investment. Ethnic diversity and political uncertainty reinforce one another in producing myopic government behaviour which results in underinvestment. Above some critical value of political instability, it is optimal for the government not to invest at all.
political instability myopic behaviour public finance corruption political economy developing countries