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International Fiscal Policy Coordination with Demand Spillovers and Labour Unions

  • Dixon, Huw David
  • Santoni, Michele

We explore the incentives for governments to cooperate by expanding expenditure. We model three countries, of which two are in a monetary union (the EU). The labour markets of both EU countries are unionized, and there is involuntary unemployment. We use a general model of bargaining, and explore in some detail the intra- and inter-country effects of changes in bargaining power. We then examine optimal government expenditure in each EU country. We find that there is a positive spillover, and that expenditures are strategic complements. The coordinated equilibrium involves higher expenditure than the uncoordinated equilibrium.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1391.

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Date of creation: Apr 1996
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Handle: RePEc:cpr:ceprdp:1391
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