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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

Abstract: 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)
Date: 1996-04
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