by Tatiana Kirsanovaa, Celsa Machadob, and Ana Paula Ribeiroc
In a monetary union where fiscal authorities act strategically, fiscal cooperation is unlikely to emerge as an equilibrium. Even when the cooperative outcome is the best for a national fiscal authority, it is either not a Nash equilibrium or only one of several Nash equilibriums. The monetary authority may have an important coordinating role; however, the Paretopreferred equilibrium will not necessarily involve cooperation.
JEL Code: E52, E61, E63.
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Discussion by Paolo A. Pesenti
a University of Glasgow
b ISCAP
c University of Porto