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International Fiscal Policy Coordination with Demand Spillovers and Labour Unions

Author

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  • Dixon, Huw David
  • Santoni, Michele

Abstract

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.

Suggested Citation

  • Dixon, Huw David & Santoni, Michele, 1996. "International Fiscal Policy Coordination with Demand Spillovers and Labour Unions," CEPR Discussion Papers 1391, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1391
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    More about this item

    Keywords

    Fiscal Policy; Imperfect Competition; Open Economy Macroeconomics;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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