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Calin Arcalean
''Capital mobility, public spending externalities and growth''
( 2016, Vol. 36 No.1 )
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.
Keywords: two-country model, productive public spending, balanced growth, strategic policies, coordination
JEL: D9 - Intertemporal Choice and Growth: General
H4 - Publicly Provided Goods: General
Manuscript Received : Nov 24 2015 Manuscript Accepted : Feb 04 2016

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