Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets
Huw Dixon () and
Michele Santoni ()
Economic Journal, 1997, vol. 107, issue 441, 403-17
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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