Fiscal Policies in Germany, France and Italy

Abstract

1) Introduction. For ease of exposition we assume that the monetary union consists of three countries, say Germany, France and Italy. The member countries are the same size and have the same behavioural functions. An increase in German government purchases raises German output. Correspondingly, an increase in French government purchases raises French output. And an increase in Italian government purchases raises Italian output. For ease of exposition we assume that fiscal policy in one of the countries has no effect on output in the other countries. In the numerical example, an increase in German government purchases of 100 causes an increase in German output of 100. Correspondingly, an increase in French government purchases of 100 causes an increase in French output of 100. And an increase in Italian government purchases of 100 causes an increase in Italian output of 100.