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The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model

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  • Stephen J. Turnovsky

Abstract

This paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model. It shows how the adjustment in terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium. In general, a noncooperative equilibrium leads to an overexpansion of government expenditure on the export good and an underexpansion on the import good, relative to a cooperative equilibrium. The specific example of a logarithmic economy is also considered. The paper discusses further the welfare effects resulting from the formation of a coalition among two countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2466.

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Date of creation: Dec 1987
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Publication status: published as Turnovsky, Stephen J. "The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model," Journal of International Economics, Vol. 25, 1988.
Handle: RePEc:nbr:nberwo:2466

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  1. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
  2. Marcus Miller & Mark Salmon, 1985. "Policy Coordination And Dynamic Games," NBER Chapters, in: International Economic Policy Coordination, pages 184-227 National Bureau of Economic Research, Inc.
  3. Chari, V V & Kehoe, Patrick J, 1990. "International Coordination of Fiscal Policy in Limiting Economies," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 617-36, June.
  4. Turnovsky, Stephen J & d'Orey, Vasco, 1986. "Monetary Policies in Interdependent Economies with Stochastic Disturbances: A Strategic Approach," Economic Journal, Royal Economic Society, vol. 96(383), pages 696-721, September.
  5. David Currie & Paul Levine, 1985. "Macroeconomic Policy Design In An Interdependent World," NBER Chapters, in: International Economic Policy Coordination, pages 228-273 National Bureau of Economic Research, Inc.
  6. Frenkel, Jacob A & Razin, Assaf, 1985. "Government Spending, Debt, and International Economic Interdependence," Economic Journal, Royal Economic Society, vol. 95(379), pages 619-36, September.
  7. Taylor, John B., 1985. "International coordination in the design of macroeconomic policy rules," European Economic Review, Elsevier, vol. 28(1-2), pages 53-81.
  8. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1, octubre-d.
  9. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  10. Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-64, October.
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