International Fiscal Policy Coordination with Demand Spillovers and Labour Unions
Huw Dixon () and
Michele Santoni ()
No 1391, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We explore the incentives for governments to cooperate by expanding expenditure. We model three countries, of which two are in a monetary union (the EU). The labour markets of both EU countries are unionized, and there is involuntary unemployment. We use a general model of bargaining, and explore in some detail the intra- and inter-country effects of changes in bargaining power. We then examine optimal government expenditure in each EU country. We find that there is a positive spillover, and that expenditures are strategic complements. The coordinated equilibrium involves higher expenditure than the uncoordinated equilibrium.
Keywords: Fiscal Policy; Imperfect Competition; Open Economy Macroeconomics (search for similar items in EconPapers)
JEL-codes: E62 F41 (search for similar items in EconPapers)
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