DP419 Fiscal Policy Interdependence and Efficiency

Author(s): Willem H. Buiter, Kenneth Kletzer
Publication Date: May 1990
Keyword(s): Capital Mobility, Fiscal Policy, Policy Coordination
JEL(s): 024, 111, 411, 441
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=419

This paper uses a two-country overlapping generations model to study the international transmission of fiscal policy among open interdependent economies under free international capital mobility. With only lump-sum taxes and transfers, international transmission involves only pecuniary externalities: barring dynamic inefficiency, only distributional issues (intergenerational and international) are involved. With age-specific taxes and transfers, the ability to run deficits and issue debt does not enhance the choice set of the governments. Source-based taxes on the rentals from capital and residence-based taxes on all property income are also studi.