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Do Structural Asymmetries Increase The Gains From International Fiscal Policy Coordination?

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  • MORTEN SPANGE

Abstract

The paper studies international coordination of fiscal stabilization policies in a two‐country stochastic general equilibrium model. The countries are assumed to differ in the sense that wages in one country are flexible whereas wages in the other country are rigid in real terms. It is found that for the country with rigid wages it will always be optimal with procyclical tax revenues whereas for the flex wage country the result is ambiguous. Comparing the uncoordinated and coordinated policies, it is found that the coordinated policies may be either more or less procyclical than in the decentralized equilibrium. Quantitatively the additional gains from a utilitarian fiscal policy relative to the decentralized equilibrium are small.

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  • Morten Spange, 2007. "Do Structural Asymmetries Increase The Gains From International Fiscal Policy Coordination?," Manchester School, University of Manchester, vol. 75(1), pages 131-150, January.
    • Handle: RePEc:bla:manchs:v:75:y:2007:i:1:p:131-150
    DOI: 10.1111/j.1467-9957.2007.01007.x
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    References listed on IDEAS

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    1. Alan Sutherland, 2002. "International monetary policy coordination and financial market integration," International Finance Discussion Papers 751, Board of Governors of the Federal Reserve System (U.S.).
    2. Spange, Morten, 2008. "International spill-over effects of labour market rigidities," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 157-178, March.
    3. Liu, Zheng & Pappa, Evi, 2008. "Gains from international monetary policy coordination: Does it pay to be different?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2085-2117, July.
    4. Mr. Eric Thode & Norbert Berthold & Rainer Fehn, 1999. "Real Wage Rigidities, Fiscal Policy, and the Stability of EMU in the Transition Phase," IMF Working Papers 1999/083, International Monetary Fund.
    5. Liu, Zheng & Pappa, Evi, 2005. "Gains from coordination in a multi-sector open economy : does it pay to be different?," LSE Research Online Documents on Economics 525, London School of Economics and Political Science, LSE Library.
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    Cited by:

    1. İrem Zeyneloğlu & Gilbert Koenig, 2016. "Recent Economic Developments and the Implications for Fiscal Policy in Open Economy Macroeconomics," Revue d'économie politique, Dalloz, vol. 126(6), pages 1023-1056.
    2. Gilbert Koenig & Irem Zeyneloglu, 2012. "International consumption risk sharing and fiscal policy," Economics Bulletin, AccessEcon, vol. 32(2), pages 1250-1260.

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