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Discussion Paper Details

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Title: Domestic Politics and the International Coordination of Fiscal Policies

Author(s): Guido Tabellini

Publication Date: February 1988

Keyword(s): Budget Deficit, Coordination, Fiscal Policy, International Policy, Political Economy and Public Spending

Programme Area(s): International Macroeconomics

Abstract: This paper investigates the desirability of international fiscal policy coordination in the presence of a domestic political distortion. The domestic distortion results from the inability of the current policy-maker to enter into a binding agreement with future policy-makers about the composition of public spending. This distortion generates a bias towards budget deficits. International coordination can exacerbate this bias, and thus reduce social welfare at home and abroad. The reason is that international coordination enables the domestic and foreign governments to form a coalition that excludes future policy-makers. This international coalition reduces the cost of running a budget deficit, and thus enhances the adverse effects of the domestic political distortion.

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Bibliographic Reference

Tabellini, G. 1988. 'Domestic Politics and the International Coordination of Fiscal Policies'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=226