Fiscal and Monetary Competition: Their Interactions and Effects

Abstract

An important research area in economics is the study of interaction between jurisdictions' economic policies, and how these interactions affect individuals. Strategic interactions between fiscal and monetary policies, and their effects on governments and individuals are investigated in this dissertation. Governments use fiscal and monetary policies to enhance the welfare of individuals living within their jurisdictions' boundaries. In order to be able to supply public goods that are demanded by individuals, governments need to raise revenue. Main findings are that monetary competition leads to lower inflation rates; low tax rates as well as local amenities are important factors in attracting migrants into a jurisdiction; monetary unification leads to oversupply of public goods; and monetary policy of a monetary union is affected by accession countries' inflation rates.