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Domestic Politics and the International Coordination of Fiscal Policies

  • Tabellini, Guido

This paper investigates the desirability of international fiscal policy coordination in the presence of a domestic political distortion. The domestic distortion results from the inability of the current policy-maker to enter into a binding agreement with future policy-makers about the composition of public spending. This distortion generates a bias towards budget deficits. International coordination can exacerbate this bias, and thus reduce social welfare at home and abroad. The reason is that international coordination enables the domestic and foreign governments to form a coalition that excludes future policy-makers. This international coalition reduces the cost of running a budget deficit, and thus enhances the adverse effects of the domestic political distortion.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 226.

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Date of creation: Feb 1988
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Handle: RePEc:cpr:ceprdp:226
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  1. Devereux, Michael, 1987. "Fiscal spending, the terms of trade, and real interest rates," Journal of International Economics, Elsevier, vol. 22(3-4), pages 219-235, May.
  2. van der Ploeg, Frederick, 1988. "International policy coordination in interdependent monetary economies," Journal of International Economics, Elsevier, vol. 25(1-2), pages 1-23, August.
  3. Giavazzi, Francesco & Pagano, Marco, 1986. "The Advantages of Tying One's Hands: EMS Discipline and Central Bank Credibility," CEPR Discussion Papers 135, C.E.P.R. Discussion Papers.
  4. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
  5. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-88, July.
  6. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  7. J. David Richardson, 1987. "International Coordination of Trade Policy," NBER Working Papers 2293, National Bureau of Economic Research, Inc.
  8. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1, August.
  9. Roland VAUBEL, 1985. "International Collusion or Competition for Macroeconomic Policy Coordination? A Restatement," Discussion Papers (REL - Recherches Economiques de Louvain) 1985031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  10. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February.
  11. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  12. Michael R. Darby & James R. Lothian, 1986. "Economic Events and Keynesian Ideas: The 1930s and the 1970s," NBER Working Papers 1987, National Bureau of Economic Research, Inc.
  13. Patrick J. Kehoe, 1986. "International policy cooperation may be undesirable," Staff Report 103, Federal Reserve Bank of Minneapolis.
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