DP1391 International Fiscal Policy Coordination with Demand Spillovers and Labour Unions
Author(s): | Huw David Dixon, Michele Santoni |
Publication Date: | April 1996 |
Keyword(s): | Fiscal Policy, Imperfect Competition, Open Economy Macroeconomics |
JEL(s): | E62, F41 |
Programme Areas: | Human Resources |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=1391 |
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.