Working Paper: NBER ID: w2466
Authors: Stephen J. Turnovsky
Abstract: This paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model. It shows how the adjustment in terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium. In general, a noncooperative equilibrium leads to an overexpansion of government expenditure on the export good and an underexpansion on the import good, relative to a cooperative equilibrium. The specific example of a logarithmic economy is also considered. The paper discusses further the welfare effects resulting from the formation of a coalition among two countries.
Keywords: Fiscal Cooperation; International Trade; Welfare Economics
JEL Codes: F42; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| noncooperative equilibrium (C72) | overexpansion of government expenditure on export goods (H59) |
| noncooperative equilibrium (C72) | underexpansion of government expenditure on import goods (H59) |
| moving from noncooperative equilibrium to cooperative equilibrium (C71) | decrease in government expenditure on export goods (H59) |
| moving from noncooperative equilibrium to cooperative equilibrium (C71) | increase in government expenditure on import goods (H59) |
| moving from noncooperative equilibrium to cooperative equilibrium (C71) | enhanced aggregate welfare (D69) |
| noncooperative equilibrium (C72) | externality affecting welfare of the other country (D62) |
| fiscal policies (H30) | large international spillovers through relative price movements (F41) |