Fiscal Policy in the New Open Economy. Macroeconomics and Prospects for Fiscal Policy Coordination

Leonor Coutinho
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Leonor Coutinho: CEPS (Centre for European Policy Studies), Postal: Place du Congrès 1; B-1000 Brussels; Belgium, http://www.ceps.be

No 21, Economics Working Papers from European Network of Economic Policy Research Institutes

Abstract: This paper reviews the analysis of fiscal policy in the new open economy macroeconomics literature, in view of increasing interest in the question of transmission and coordination of policies across countries, stirred by developments in this literature and by the formation of the euro area. The analysis focuses on two main points: (i) the identification of welfare spillover e.ects to third countries; and (ii) the assessments made so far of the potential gains from pursuing non-cooperative and cooperative fiscal stabilisation policies. Regarding welfare spillovers, some additional results are derived to examine whether the exchange rate regime (flexible or fixed) matters for the size of these spillovers, and whether the type of policy pursued (balanced-budget or debt- financed) matters. Fixed exchange rates only seem to postpone the costs from the short to the long run, but the type of policy is crucial in determining the welfare impact of fiscal expansions. With respect to policy coordination, attention is drawn to the need to reflect on a potential role for fiscal policy as a stabilisation tool, and on possible interactions between fiscal and monetary policy.

Keywords: Fiscal policy; Spillovers; Stabilisation; Coordination (search for similar items in EconPapers)
JEL-codes: E42 F41 F42 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2003-06
New Economics Papers: this item is included in nep-ifn and nep-mac
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Citations: View citations in EconPapers (1)

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