Discussion Paper Details

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Title: The Welfare Economics of Cooperative and Uncooperative Fiscal Policy

Author(s): Willem H. Buiter and Kenneth Kletzer

Publication Date: May 1990

Keyword(s): Fiscal Policy, Policy Coordination and Social Welfare

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Buiter, W and Kletzer, K. 1990. 'The Welfare Economics of Cooperative and Uncooperative Fiscal Policy'. London, Centre for Economic Policy Research.