Working Paper: CEPR ID: DP420
Authors: Willem H. Buiter; Kenneth M. Kletzer
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 where 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 functi.
Keywords: policy coordination; fiscal policy; Pareto optimality; social welfare
JEL Codes: 431; 441; 411; 024
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fiscal policy design (H30) | economic efficiency (D61) |
| introduction of distortionary taxes (H31) | coordination of fiscal policies (F42) |
| international cooperation (F53) | improved welfare outcomes (I38) |
| fiscal policy design (H30) | Pareto efficiency (D61) |
| Pareto efficiency (D61) | equitable resource distribution (D63) |