Buy National or Buy International? The optimal design of government spending in an open economy

Mario Larch and Wolfgang Lechthaler

International Review of Economics & Finance, 2013, vol. 26, issue C, 87-108

Abstract: Should governments only purchase domestic goods to increase welfare? And would government spending be higher if it was used for domestic goods only? Such proposals, which we call Buy National, were discussed in many countries in the context of the fiscal stimuli used to fight the recent global recession. We augment a simple trade model by government spending and find that the optimal size of government spending of Buy National is higher than the optimal level of government spending that does also include foreign-produced goods (Buy International). However, even though the optimal level of government spending is higher, real GDP and hence welfare are both lower in the Buy National regime.

Keywords: Buy American; Buy International; Buy National; Optimal government spending (search for similar items in EconPapers)
JEL-codes: E62 F40 H30 H87 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:26:y:2013:i:c:p:87-108

DOI: 10.1016/j.iref.2012.08.010

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