SHOCKS ON PUBLIC SPENDING AND ECONOMIC GROWTH IN FRAGILE STATES

Abstract

This paper focuses on fragile States, and look deeply how shocks on public spending affect private production, economic growth and households' welfare. The paper provides an explanation of a source of growth and technological progress in unstable countries. The increasing of public expenditures enhances the private production and households' consumption. One innovation of this paper is in the way to introduce shocks into economy. In fragile States, shocks are random variables that follow a Bernoulli process, which appear on public spending and affect the rest of economy.