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Title: International Fiscal Policy Coordination with Demand Spillovers and Labour Unions

Author(s): Huw David Dixon and Michele Santoni

Publication Date: April 1996

Keyword(s): Fiscal Policy, Imperfect Competition and Open Economy Macroeconomics

Programme Area(s): Human Resources

Abstract: We explore the incentives for governments to cooperate by expanding expenditure. We model three countries, of which two are in a monetary union (the EU). The labour markets of both EU countries are unionized, and there is involuntary unemployment. We use a general model of bargaining, and explore in some detail the intra- and inter-country effects of changes in bargaining power. We then examine optimal government expenditure in each EU country. We find that there is a positive spillover, and that expenditures are strategic complements. The coordinated equilibrium involves higher expenditure than the uncoordinated equilibrium.

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Bibliographic Reference

Dixon, H and Santoni, M. 1996. 'International Fiscal Policy Coordination with Demand Spillovers and Labour Unions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1391