We examine the limiting behavior of cooperative and noncooperative fiscal policies as countries’ market power goes to zero. We show that these policies converge if countries raise revenues through lump-sum taxation. However, if there are unremovable domestic distortions, such as distorting taxes, there can be gains to coordination even when a single country’s policy cannot affect world prices. These results differ from the received wisdom in the optimal tariff literature. The key distinction is that, unlike in the tariff literature, the spending decisions of governments are explicitly modeled.
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Publisher Info
Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number
121.
Length: Date of creation: 1989 Date of revision: Publication status: Published in Journal of Political Economy (vol.98, n.3, June 1990, pp.617-636) Handle: RePEc:fip:fedmsr:121
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