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Fiscal Policies and Endogenous Growth in Integrated Capital Markets

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  • Lejour, A.M.
  • Verbon, H.A.A.

    (Tilburg University, Center for Economic Research)

Abstract

This paper examines the effects of policy coordination in a two-country world with endogenous growth and imperfect capital mobility.Public investment and a public consumption good are financed by a source-based capital-income tax. By comparing the cases in which countries do and do not coordinate their fiscal policies, it follows that spending on investment and redistribution can be inefficiently high if fiscal policies are not coordinated.This is caused by the negative effects of fiscal policy on economic growth abroad.This externality can dominate the well-known tax-base externality.Coordination of only investment policy decreases the inefficiency of that policy, but it increases the inefficiency of noncoordinated provision of the public good.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-76.

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Date of creation: 1996
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Handle: RePEc:dgr:kubcen:199676

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Web page: http://center.uvt.nl

Related research

Keywords: fiscal policy; economic growth; capital markets; economic integration; capital movements;

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References

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  1. Clarida, Richard & Findlay, Ronald, 1994. "After Maastricht: Public Investment, Economic Integration and International Capital Mobility," Economica, London School of Economics and Political Science, vol. 61(243), pages 319-29, August.
  2. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  3. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
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Cited by:
  1. Inaki Erauskin-Iurrita, 2004. "Risk, productive government expenditure, and the world economy," International Finance 0412003, EconWPA.

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