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The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model

Stephen J. Turnovsky

NBER Working Paper No. 2466 (Also Reprint No. r1137)
Issued in December 1987
NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program

This paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model. It shows how the adjustment in terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium. In general, a noncooperative equilibrium leads to an overexpansion of government expenditure on the export good and an underexpansion on the import good, relative to a cooperative equilibrium. The specific example of a logarithmic economy is also considered. The paper discusses further the welfare effects resulting from the formation of a coalition among two countries.

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Document Object Identifier (DOI): 10.3386/w2466

Published: Turnovsky, Stephen J. "The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model," Journal of International Economics, Vol. 25, 1988. citation courtesy of

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