Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets
The authors explore the incentives for governments to cooperate by expanding expenditure. They have three countries: two are in a monetary union (the EMU). The labour markets of both the EMU countries are unionized and there is involuntary unemployment in equilibrium. The authors explore the intra- and intercountry effects of changes in bargaining power. They then examine optimal government expenditures in each EMU country; the authors find that there is a positive spillover and that expenditures are strategic complements. The coordinated equilibrium involves higher expenditure than the uncoordinated equilibrium. Copyright 1997 by Royal Economic Society.
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Volume (Year): 107 (1997)
Issue (Month): 441 (March)
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