The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model

22 Pages Posted: 6 Apr 2007 Last revised: 29 Sep 2010

Date Written: December 1987

Abstract

This paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model. It shows how the adjustment in terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium. In general, a noncooperative equilibrium leads to an overexpansion of government expenditure on the export good and an underexpansion on the import good, relative to a cooperative equilibrium. The specific example of a logarithmic economy is also considered. The paper discusses further the welfare effects resulting from the formation of a coalition among two countries.

Suggested Citation

Turnovsky, Stephen, The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model (December 1987). NBER Working Paper No. w2466. Available at SSRN: https://ssrn.com/abstract=977755

Stephen Turnovsky (Contact Author)

affiliation not provided to SSRN

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