This paper explores the interrelations between budget deficits and structural reforms in a monetary union. The analysis considers the international spillovers generated by both policies. We show that efforts to achieve fiscal policy coordination within the Eurozone reduce member countries’...

Abstract This paper shows that, in a multi-country framework with government deficit spillovers, designing institutions that reduce the budget deficit is an optimal response from a country’s individual point of view. However, at an aggregate level this non-cooperative behavior is...