Dynamic Public Investment Rules in a Neo-classical Growth Model

This paper derives in the context of the Arrow and Kurz model decision rules for public investment which apply whether or not the economy is on the optimal path and for a wide variety of institutional constraints. The method is comparative dynamics. The net benefits of a change in public investment are found by evaluating the change in the path of consumption over time from the change in public investment. As a special case, the Marglin-Feldstein decision rules are derived from a neo-classical growing economy.