Discussion paper

DP419 Fiscal Policy Interdependence and Efficiency

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.


Buiter, W and K Kletzer (1990), ‘DP419 Fiscal Policy Interdependence and Efficiency‘, CEPR Discussion Paper No. 419. CEPR Press, Paris & London. https://cepr.org/publications/dp419