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Globalization in an Age of CrisisMultilateral Economic Cooperation in the Twenty-First Century$
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Robert C. Feenstra and Alan M. Taylor

Print publication date: 2014

Print ISBN-13: 9780226030753

Published to Chicago Scholarship Online: September 2014

DOI: 10.7208/chicago/9780226030890.001.0001

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Multilateral Economic Cooperation and the International Transmission of Fiscal Policy

Multilateral Economic Cooperation and the International Transmission of Fiscal Policy

Chapter:
(p.257) 7 Multilateral Economic Cooperation and the International Transmission of Fiscal Policy
Source:
Globalization in an Age of Crisis
Author(s):

Giancarlo Corsetti

Gernot J. Müller

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226030890.003.0008

The problem of fiscal policy coordination across countries has been thrust into the spotlight by the Great Recession The authors attack this question using both theory and empirics, and find evidence that, using standard identification methods, US fiscal shocks do generate quite large spillovers across the Atlantic. In theory it is quite hard to generate large cross-border spillovers: the “financial channel” matters, but doubts about solvency would undermine the mechanism. Thus international coordination may be helpful if it creates and sustains “fiscal space” so that truly solvent countries avoid self-fulfilling sovereign crises.

Keywords:   Fiscal policy, International coordination, Great Recession, Cross-border spillovers

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