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International coordination of fiscal policy in limiting economies
Abstract: We examine the limiting behavior of cooperative and noncooperative fiscal policies as countries? market power goes to zero. We show that these policies converge if countries raise revenues through lump-sum taxation. However, if there are unremovable domestic distortions, such as distorting taxes, there can be gains to coordination even when a single country?s policy cannot affect world prices. These results differ from the received wisdom in the optimal tariff literature. The key distinction is that, unlike in the tariff literature, the spending decisions of governments are explicitly modeled.
Keywords: International economic relations; Fiscal policy;
Status: Published in Journal of Political Economy (vol.98, n.3, June 1990, pp.617-636)
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Bibliographic Information
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Staff Report
Publication Date: 1989
Number: 121