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Domestic Politics and the International Coordination of Fiscal Policies

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Tabellini, Guido

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Abstract

This 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 226.

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Date of creation: Feb 1988
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Handle: RePEc:cpr:ceprdp:226

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Related research
Keywords: Budget Deficit; Coordination; Fiscal Policy; International Policy; Political Economy; Public Spending;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  2. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February. [Downloadable!] (restricted)
    Other versions:
  3. J. David Richardson, 1987. "International Coordination of Trade Policy," NBER Working Papers 2293, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February. [Downloadable!] (restricted)
  5. Patrick J. Kehoe, 1986. "International policy cooperation may be undesirable," Staff Report 103, Federal Reserve Bank of Minneapolis. [Downloadable!]
  6. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Oxford University Press, vol. 24(3), pages 367-88, July.
  7. Giavazzi, Francesco & Pagano, Marco, 1986. "The Advantages of Tying One's Hands: EMS Discipline and Central Bank Credibility," CEPR Discussion Papers 135, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Devereux, Michael, 1987. "Fiscal spending, the terms of trade, and real interest rates," Journal of International Economics, Elsevier, vol. 22(3-4), pages 219-235, May. [Downloadable!] (restricted)
  10. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John William Hatfield & Gerard Padró i Miquel, 2009. "A Political Economy Theory of Partial Decentralization," NBER Working Papers 14628, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Willem Buiter & Anne Sibert, 2004. "Cross-Border Tax Externalities: Are Budget Deficits Too Small?," Birkbeck Working Papers in Economics and Finance 0408, Birkbeck, Department of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
  3. Jay Bryson & Henrik Jensen & David Hoose, 1993. "Rules, discretion, and international monetary and fiscal policy coordination," Open Economies Review, Springer, vol. 4(2), pages 117-132, June. [Downloadable!] (restricted)
  4. Carmen Díaz-Roldán, . "Coordination of Fiscal Policies in a Monetary Union," Working Papers on International Economics and Finance 00-09, FEDEA. [Downloadable!]
    Other versions:
  5. Jon Faust, 1992. "Whom can we trust to run the Fed? Theoretical support for the founders' views," International Finance Discussion Papers 429, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Michelle R. Garfinkel & Jaewoo Lee, 2000. "Political Influence and the Dynamic Consistency of Policy," American Economic Review, American Economic Association, vol. 90(3), pages 649-666, June. [Downloadable!] (restricted)
  7. Laurence H. Meyer & Brian M. Doyle & Joseph E. Gagnon & Dale W. Henderson, 2002. "International coordination of macroeconomic policies: still alive in the new millennium?," International Finance Discussion Papers 723, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  8. Rui Henrique Alves & Óscar Afonso, 2006. "The “New” Stability and Growth Pact: More Flexible, Less Stupid?," FEP Working Papers 218, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
    Other versions:
  9. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July. [Downloadable!] (restricted)
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