Domestic politics and the international coordination of fiscal policies
AbstractThis paper investigates the desirability of international fiscal policy coordination in the presence of a domestic political distortion. The domestic distortion results from the inability of the current policy-maker to enter into a binding agreement with future policy-makers about the composition of public spending. This distortion generates a bias towards budget deficits. International coordination can exacerbate this bias, and thus reduce social welfare at home and abroad. The reason is that international coordination enables the domestic and foreign governments to form a coalition that excludes future policy-makers. This international coalition reduces the cost of running a budget deficit, and thus enhances the adverse effects of the domestic political distortion.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 28 (1990)
Issue (Month): 3-4 (May)
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Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
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- Tabellini, Guido, 1988. "Domestic Politics and the International Coordination of Fiscal Policies," CEPR Discussion Papers 226, C.E.P.R. Discussion Papers.
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