Fiscal Policy Coordination and International Trade

23 Pages Posted: 11 Apr 2007

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Abstract

While assertions are often made that non-cooperative fiscal policies suffer a contractionary bias, general equilibrium models have shown that the bias is unambiguously expansionary. This paper argues that the latter result relies on a particular and critical way of modelling international trade, and that under a more plausible trade structure, it is possible that fiscal policy is insufficiently expansionary in the non-cooperative case. Non-cooperative policy-making thus implies that fiscal policies are used too little if they expand private employment, and too much if they contract private employment. Inefficiencies in non-cooperative fiscal policies worsen when product markets become more integrated.

Suggested Citation

Andersen, Torben M., Fiscal Policy Coordination and International Trade. Economica, Vol. 74, No. 294, pp. 235-257, May 2007, Available at SSRN: https://ssrn.com/abstract=978549 or http://dx.doi.org/10.1111/j.1468-0335.2006.00536.x

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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