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Global public goods, fiscal policy coordination, and welfare in the world economy

Author

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  • Agénor, Pierre-Richard
  • Pereira da Silva, Luiz A.

Abstract

A two-region endogenous growth model of the world economy with local and global public goods is used to study strategic interactions between national policymakers. Distortionary taxes are used to finance infrastructure investment at home and generate resources for vaccine production by a global fund. While the global public good is nonexcludable, it is partially rival. Optimal tax rates under cooperation and noncooperation are solved for analytically, under both financial autarky and openness, and numerical experiments are performed to evaluate the welfare gain from cooperation. Whether optimal levies are higher or lower under cooperation, and the magnitude of welfare gains, depend on the degree of integration of capital markets, the existence of a direct trade-off between expenditure components, and the nature of the tax base. When the health levy takes the form of a capital or wealth tax, cooperation is welfare-improving under both autarky and financial openness, but enforcement and collection costs may narrow the scope of taxation under all policy regimes.

Suggested Citation

  • Agénor, Pierre-Richard & Pereira da Silva, Luiz A., 2025. "Global public goods, fiscal policy coordination, and welfare in the world economy," European Economic Review, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:eecrev:v:172:y:2025:i:c:s0014292124002435
    DOI: 10.1016/j.euroecorev.2024.104914
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    More about this item

    Keywords

    Global Public Goods; Two-country endogenous growth models; Tax policy coordination; Welfare;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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