The paper investigates the fiscal policy interactions between economies sharing an integrated capital market and derives implications for the dynamics and sustainability of policy coordination. There are two main channels: (1) fiscal competition over mobile capital and (2) a public debt...

I develop a political economy theory of dynamic fiscal competition via public spending and debt. With internationally mobile capital, strategic policies generate two cross-border externalities that voters in each country fail to internalize: (1) an increase in public spending that bolsters...