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 language | English |
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Pages (from-to) | 22-28 |
Number of pages | 7 |
Journal | Economics Bulletin |
Volume | 36 |
Issue number | 1 |
Publication status | Published - 2016 |
Externally published | Yes |