Capital mobility, public spending externalities and growth

Research output: Indexed journal article Articlepeer-review

Abstract

I present a two-country dynamic model where (i) in each country public spending increases firm entry and (ii) capital is internationally mobile. I show that the difference between the aggregate output elasticity with respect to public spending and its firm level counterpart creates a positive cross-border externality in public spending. In contrast with the literature on cross-border spillovers, this externality arises only under fiscal competition between countries and may therefore lead to higher growth rates under strategic policies relative to coordination.

Original languageEnglish
Pages (from-to)22-28
Number of pages7
JournalEconomics Bulletin
Volume36
Issue number1
Publication statusPublished - 2016
Externally publishedYes

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