IDEAS home Printed from https://ideas.repec.org/a/bla/reviec/v32y2024i3p1341-1363.html
   My bibliography  Save this article

Global shocks, budgets deficits, and international fiscal policy coordination

Author

Listed:
  • Pierre‐Richard Agénor

Abstract

A simple two‐country model with trade, fiscal and interest rate externalities is used to study strategic interactions between national policymakers. Optimal fiscal policy internalizes a trade‐off between output stability and fiscal stability. With lump‐sum taxation, the noncooperative equilibrium is inefficient and both countries are better off under coordination. These results also hold if taxation is distortionary and trade generates a fiscal externality as well, regardless of how strong the preference for output stability is. In response to a negative global demand shock, consistent with the disruptions that occurred during the recent pandemic, the optimal policy response is to increase spending by more under cooperation. However, if budget deficits generate a sufficiently strong negative cross‐border externality through higher interest rates, the optimal response calls for lower spending under cooperation.

Suggested Citation

  • Pierre‐Richard Agénor, 2024. "Global shocks, budgets deficits, and international fiscal policy coordination," Review of International Economics, Wiley Blackwell, vol. 32(3), pages 1341-1363, August.
    • Handle: RePEc:bla:reviec:v:32:y:2024:i:3:p:1341-1363
    DOI: 10.1111/roie.12732
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/roie.12732
    Download Restriction: no
    File URL: https://libkey.io/10.1111/roie.12732?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reviec:v:32:y:2024:i:3:p:1341-1363. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.