Abstract
This paper studies the domestic and international effects of “public competition policies” aimed at improving the efficiency of public spending. Such measures are modeled as an increase in the price elasticity of public consumption. The paper finds that public competition policies significantly affect macroeconomic interdependence across countries, both through the impact of the international elasticity of substitution and of mark-up effects. The paper also develops an extension in which fiscal shocks are stochastic. In welfare terms, countries with a larger government sector have an incentive to promote global public competition policies regardless of whether fiscal policy is modeled as deterministic or stochastic.
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