International Coordination of Fiscal Policy in Limiting Economies

Varadarajan Chari and Patrick Kehoe

Journal of Political Economy, 1990, vol. 98, issue 3, 617-36

Abstract: The authors examine the limiting behavior of cooperative and noncooperative fiscal policies as countries' market power goes to zero. They show that these policies converge if countries raise revenues through lump-sum taxation. However, if there are unremovable domestic distortions, such as distorting taxes, there can be gains to coordination even when a single country's policy cannot affect world prices. These results differ from the received wisdom in the optimal tariff literature. The key distinction is that, contrary to the tariff literature, the spending decisions of governments are explicitly modeled. Copyright 1990 by University of Chicago Press.

Date: 1990
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Working Paper: International coordination of fiscal policy in limiting economies (1989)
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