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A note on poor-institution traps in international fiscal policy games


  • Pierre Faure

    () (Larefi, Université Montesquieu - Bordeaux 4)


This note explores the link between the effort level to strengthen institutional quality and the nature of the fiscal policy game among interdependent economies plagued by corruption. Every country has a lower incentive to improve public governance when the effort made abroad to remedy institutional deficiencies becomes weaker. More importantly, the model highlights a possible trade-off between fighting corruption in interrelated developing countries and promoting fiscal policy coordination among them: cooperation goes together with the acceptance of more corruption. It follows that poor-institution traps can be Pareto-improving.

Suggested Citation

  • Pierre Faure, 2011. "A note on poor-institution traps in international fiscal policy games," Economics Bulletin, AccessEcon, vol. 31(1), pages 375-387.
  • Handle: RePEc:ebl:ecbull:eb-11-00015

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    References listed on IDEAS

    1. Carsten Hefeker, 2010. "Taxation, corruption and the exchange rate regime," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 338-346, March.
    2. Aidt, Toke & Dutta, Jayasri & Sena, Vania, 2008. "Governance regimes, corruption and growth: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 195-220, June.
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    More about this item


    Corruption; Fiscal policy; International coordination;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • D7 - Microeconomics - - Analysis of Collective Decision-Making


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