Domestic Politics and the International Coordination of Fiscal Policies

Guido Tabellini

No 226, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper investigates the desirability of international fiscal policy coordination in the presence of a domestic political distortion. The domestic distortion results from the inability of the current policy-maker to enter into a binding agreement with future policy-makers about the composition of public spending. This distortion generates a bias towards budget deficits. International coordination can exacerbate this bias, and thus reduce social welfare at home and abroad. The reason is that international coordination enables the domestic and foreign governments to form a coalition that excludes future policy-makers. This international coalition reduces the cost of running a budget deficit, and thus enhances the adverse effects of the domestic political distortion.

Keywords: Budget Deficit; Coordination; Fiscal Policy; International Policy; Political Economy; Public Spending (search for similar items in EconPapers)
Date: 1988-02
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Related works:
Journal Article: Domestic politics and the international coordination of fiscal policies (1990)
Working Paper: Domestic Politics and the International Coordination of Fiscal Policies (1988)
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