The Welfare Economics of Cooperative and Noncooperative Fiscal Policy

Willem Buiter and Kenneth Kletzer

No 3329, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a competitive two-country overlapping generations model with perfect capital mobility, a plan that is individually Pareto optimal (that is Pareto optimal with respect to individual preferences) can be sustained without coordination of national fiscal policies when the fiscal arsenal is restricted to lump-sum taxes and government borrowing. Cooperation is required to achieve a Pareto optimum with respect to the two utilitarian national social welfare functions. Cooperation and international side payments are required to achieve an optimum with respect to a utilitarian global social welfare function. Without international lump-sum transfers, when distortionary taxes on capital income are permitted, Pareto optima with respect to national social welfare functions and global social welfare optima will not be individual Pareto optima: efficiency is traded off for a more desirable intergenerational and international distribution of resources. With nationally provided international public goods, the achievement of individual Pareto efficiency requires coordination of public spending but not of financing.

Date: 1990-04
Note: ITI IFM
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Citations: View citations in EconPapers (11)

Published as Journal of Economic Dynamics and Control, Vol. 15, pp. 215-244, (1991).

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Related works:
Journal Article: The welfare economics of cooperative and noncooperative fiscal policy (1991)
Working Paper: The Welfare Economics of Cooperative and Uncooperative Fiscal Policy (1990)
Working Paper: THE WELFARE ECONOMICS OF COOPERATIVE AND NONCOOPERATIVE FISCAL POLICY (1990)
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