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

Pierre-Henri Faure

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Abstract: 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.

Date: 2011-01-19
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Published in Economics Bulletin, 2011, 31 (1), pp. 375-387

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Journal Article: A note on poor-institution traps in international fiscal policy games (2011)
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